[PPT] - Turkish Macroeconomic and Financial Sector Outlook Murat etinkaya PowerPoint Presentation

SLIDE 1

Turkish Macroeconomic and Financial Sector Outlook

Murat Çetinkaya

Deputy Governor

Central Bank of Republic of Turkey

November 17, 2015 IFN Forum Turkey, İstanbul

SLIDE 2

2

Outline

A. Macroeconomic Outlook
B. Financial Sector Overview
C. Islamic Finance (IF) in Turkey

SLIDE 3

3

MACROECONOMIC OUTLOOK

SLIDE 4

4

Source: TURKSTAT.

GDP Growth Rates (YoY, Constant Prices, Percent)

The slowdown in developing countries makes downward pressure on global growth.

Last Observation: 2015 Q2.

6
4
2

2 4 6 2007 2008 2009 2010 2011 2012 2013 2014 2015 Export Weighted GDP Weighted

6
4
2

2 4 6 8 10 12 2007 2008 2009 2010 2011 2012 2013 2014 2015 Advanced Countries Developing Countries Developing Countries Excluding India and China

SLIDE 5

5

Source: TURKSTAT.

GDP (Seasonally Adjusted, Constant Prices, Billion TL)

However, GDP continues to grow at a stable pace in Turkey.

Last Observation: 2015 Q2.

17 19 21 23 25 27 29 31 33 35 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

SLIDE 6

Job creation has been remarkable in Turkey compared to both advanced and developing countries.

6

Advanced Countries and Turkey Developing Countries and Turkey

4
3
2
1

1 2 3 4 Greece Ireland Spain Portugal Italy Japan USA France UK Austria Sweden Belgium Germany Canada Korea Switzerland Australia Turkey 1 2 3 4 Czech R. Russia Poland Thailand Hungary Egypt S.Africa Brazil Philippines Mexico Peru Indonesia Chile Turkey Colombia Malaysia

Source: IMF. Source: IMF. *The data for Chile, Colombia, Egypt, Malaysia and Peru is between 2007-2013.

Growth Rate of Total Employment*

(Annual Average, Percent, 2007-2014)

SLIDE 7

7

Source: TURKSTAT, CBRT.

Inflation Realizations and Targets

(Percent)

Decisive monetary implementation has been the main driver of disinflation.

January 2002: 73.16, March 2003: 33.41, July 2006: 11.69, July 2008: 12.06, April 2010: 10.19, April 2012: 11.44, May 2014: 9.66 Last Observation: October 2015.

73,16 33,41 11,69 12,06 10,19 11,14 9,66 7,58 10 20 30 40 50 60 70 80

Realization Target

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Target 35 20 12 8 5 4 4 7.5 6.5 5.5 5 5 5 5 5 Realization 29.7 18.4 9.3 7.7 9.7 8.4 10.1 6.5 6.4 10.4 6.2 7.4 8.2

SLIDE 8

8

Source: CBRT.

Current Account Balance

(12-Month Cumulative, % GDP)

The improvement in current account deficit proceeds.

Last Observation: 2015 Q2.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Account Deficit (Billion USD) 0.6 7.6 14.2 21.4 31.8 37.8 40.4 12.2 45.4 75.1 48.5 65.0 47.0 Current Account Deficit/GDP (%) 0.3 2.5 3.6 4.5 6.0 5.7 5.4 2.0 6.2 9.7 6.2 7.9 5.8

10,0
8,0
6,0
4,0
2,0

0,0 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Current Account Deficit/GDP Current Account Deficit/GDP (excl. gold)

Macroprudential Policies

SLIDE 9

9

Source: Undersecretariat of Treasury, Medium Term Program (2016-2018).

EU Defined Gross Public Debt

(Percent of GDP)

Fiscal discipline is expected to remain strong.

Last Observation: 2014. * Medium Term Program (2016-2018) realization target. ** Medium Term Program (2016-2018) target.

77,9 74,0 67,7 59,6 52,7 46,5 39,9 40,0 46,0 42,3 39,1 36,2 36,1 33,5 34,0 32,8 31,3 30,0 20 40 60 80 20 40 60 80

SLIDE 10

10

FINANCIAL SECTOR OVERVIEW

SLIDE 11

Financial deepening in Turkey is on the rise.

11

Source: BRSA, CBRT

Total Bank Assets, Loans and Deposits to GDP (Percent)

20 40 60 80 100 120

Assets to GDP Loans to GDP Deposits to GDP

*Latest Data: 2015Q1

SLIDE 12

Banking sector competition has rapidly increased in recent years.

12

Source: Financial Stability Report, May 2015, CBRT

Boone Indicator and External Financing

Concentration

(Percent)

40 45 50 55 60 65 70 75 80 85 90

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Top 5 Banks Top 10 Banks

*2015 is as of September

0,05 0,1 0,15 0,2 0,25 0,3 0,35 0,4 0,45 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 2005-01 2006-01 2007-01 2008-01 2009-01 2010-01 2011-01 2012-01 2013-01 2014-01

Boone Indicator Ratio of External Borrowing (Right Axis)

SLIDE 13

13

Source: CBRT.

Total Loan Growth

(YoY Change, FX Adjusted, Percent)

Total loan growth has been hovering around 15 percent.

Last Observation: November 6, 2015. Total banking sector (including participation banks, excluding non-performing loans)

10 15 20 25 30 35 40 45

SLIDE 14

14

Banks are well capitalized.

Capital Adequacy Ratios in G20 Countries

(Percent)

Source: IMF Last Observation: For France, Italy and Saudi Arabia 2014 Q2, for Japan 2014 Q3, for UK 2014 Q4 and for others 2015 Q1.

15,50 5 10 15 20 25

SLIDE 15

Asset quality of the Turkish banking sector remains high.

15

Source: BRSA, CBRT Latest Data: 06.11.2015

NPL Ratios

(Percent)

2,00 2,50 3,00 3,50 4,00 4,50 5,00 5,50 6,00 6,50 12.05 05.06 10.06 03.07 08.07 01.08 06.08 11.08 04.09 09.09 02.10 07.10 12.10 05.11 10.11 03.12 08.12 01.13 06.13 11.13 04.14 09.14 02.15 07.15

Total

Corporate

Retail

NPL Coverage Ratio and Cost of Risk* (Percent)

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 70 80 90 100 110 120 130 140 150 12.07 06.08 12.08 06.09 12.09 06.10 12.10 06.11 12.11 06.12 12.12 06.13 12.13 06.14 12.14 06.15 NPL Coverage Ratio NPL Coverage Ratio Adjusted Cost of Risk (RHA)

*Cost of Risk=Special Provisions for NPL/Average Loans NPL Coverage Ratio Adjusted considers the value of collateral.

SLIDE 16

FX and liquidity risks of the Turkish banking sector are significantly low.

16

FX Position

(Billion TL)

Source: BRSA (1) Development and Investment Banks are excluded. Source: BRSA Last data: 30.10.2015

Total Liquidity Coverage Ratio1

(Percent)

2015 2015 2010 2007

50 100 150 200 250 300 350 400 450 500 10.14 11.14 11.14 12.14 01.15 01.15 02.15 03.15 03.15 04.15 05.15 05.15 06.15 07.15 07.15 08.15 09.15 09.15 10.15 Sector Legal Ratio

60
40
20

20 40 60 06.04.13 05.06.13 04.08.13 03.10.13 02.12.13 31.01.14 01.04.14 31.05.14 30.07.14 28.09.14 27.11.14 26.01.15 27.03.15 26.05.15 25.07.15 23.09.15

Net Position On-BalanceSheet Off-BalanceSheet

SLIDE 17

17

ISLAMIC FINANCE (IF) IN TURKEY

SLIDE 18

Turkish experience on Islamic finance

 Market share of participation banks has been increasing significantly in

recent years.

 Islamic finance is expected to contribute financial stability by:

i.

providing more diversified funding and loan bases,

ii.

promoting risk sharing based funding rather than debt instruments,

iii.

providing support for investments and especially SME’s finance.

 One of the objectives of Turkish G20 presidency is to increase financial

inclusion through enhancing SMEs’ access to funds and to promote equity financing instead of debt instruments.

 New entrances are expected to enhance the development of Islamic

finance in Turkey.

18

SLIDE 19

There is still room for further growth in Islamic Finance for Turkey.

19

Islamic Banking Share in Total Banking Assets by Jurisdiction (1H 2014) Shares of Global Islamic Banking Assets (1H 2014)

Source: IFSB (« IFSI Stability Report 2015»)

SLIDE 20

Islamic Finance and Financial Stability

I. Does Islamic finance contribute financial stability ?
II. What should be done for stable and resilient functioning
f Islamic finance entities ?

20

SLIDE 21

Enabling Stable Functioning of IF

 Regulation: Understanding the business model and products  Providing risk-hedging policies and instruments:

Liquidity management
New product development

21

SLIDE 22

Need for Regulation and Standardization

 Need for improving regulatory oversight (rapid growth)  Industry standards for customer confidence and protection  Flexibility to meet the customer demand

Competitiveness Growth Resiliency Stability

22

SLIDE 23

New Global Regulatory Structure

G-20

BCBS, CPSS, IOSCO, IAIS, IASB IFSB National Authorities FSB

Main Reform Areas

1. Basel III capital

framework

2. Basel III liquidity

framework

3. G-SIBs
4. OTC derivatives reforms
5. Shadow Banking
6. Other national or

regional regulatory reforms

23

SLIDE 24

A Challenge: Liquidity Management

24

Lack of liquid instruments result in

Competitive disadvantage compared

to conventional banks (higher holding of cash and larger net liquidity gap)

Basel III would affect liquidity

position of Islamic Banks

Impeding on cross-border activities

Islamic banks need liquid instruments:

High quality
Short term
Sharia’h compliant
In international currency

SLIDE 25

IILM initiative to support Islamic finance

25

IILM : A unique initiative of central banks

Compatible with the liquid asset definitions in international regulations Globally accepted and tradable in secondary market Short-term (3 months- 1 year) Highly rated (A1/P1/F1) In major reserve currencies Eligible collateral for interbank transactions and/or central bank financing

SLIDE 26

Overview

 The slowdown in developing countries makes downward pressure

n global growth.

 Turkish macroeconomic environment is resilient and promising.  Financial sector remains sound and stable.  Islamic finance is on growth track both globally and in Turkish market.  Turkey is successful in achieving smooth development of Islamic finance institutions and in "leveling the play-field".  Domestic and international regulatory challenges will be taken into account in the upcoming period to enhance further development of Islamic finance in Turkey.

26