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Recent developments in the Turkish Finance sector

By Cagri Goktas, LL.M
Posted: 18th May 2011 19:56

Overview of the Turkish Financial Sector

Turkey has a heavily regulated financial market and the applicable rules and regulations are compatible with the rules of the Financial Services Authority in the United Kingdom.  Since 2001, the date the Turkish economy suffered a banking system driven economic crisis, the regulations and rules surrounding the financial institutions were extended for the sake of financial stability as well as the needs of globalisation and integration of the Turkish economy to the world economy.

The banking sector forms a great part of the Turkish financial system in its dynamic economy.  Most of the transactions and activities of money and capital markets are carried out by banks.  Most State banks were established to finance a particular industry such as agriculture (Ziraat Bank), but private banks generally have close connections to large industrial groups and holdings.

The number of banks operating in Turkey is forty eight at the end of March 2011 with thirty one in deposit banks group and thirteen in non-deposit banks group, while there were also four participation banks, rendering interest-free banking services. 

Amongst deposit banks, there are three state-owned banks, eleven privately-owned banks and sixteen foreign banks. Fortis Bank A.S., which was operating in foreign banks group as of December 2010, was taken over by Turk Ekonomi Bankasi A.S. (jointly controlled by BNP Paribas and Colakoglu Group) together with all assets and liabilities in January 25, 2011.

The number of branches continued to increase in January-March 2011 period.  The total number of branches in the deposit banks and development and investment banks increased by 552 to 9,581 at the end of March 2011 as compared to March 2010 and by 116 as compared to December 2010.

As of March 2011, the number of employees in the deposit banks and development and investment banks increased by 5,545 (3.2 percent) to 180,038, compared to March 2010 and by 1,535 (1 percent) compared to December 2010.

The average capital adequacy ratio of Turkish banking sector is 19% by the end of 2010.  The Return on assets is 2.5% and return on equity is 18.1% by the end of December 2010, whereas the inflation rate is 6.4%.

Regulatory Environment and Recent Legal Changes

All banks in Turkey are subject to the Banking Law No. 5411 and to the provisions of other laws regarding banks.  The Banks Law No. 4389, brought the Banking Regulation and Supervision Agency (BRSA, or Turkish BDDK) into life to safeguard the whole system as well as the rights and benefits of depositors. The Banks Association of Turkey (BAT or Turkish TBB) is the representative body of the banking sector in Turkey established for protecting and promoting the professional interests of its members.

Likewise financial leasing, factoring, consumer finance and asset management companies are also under the supervision of the BRSA and the Treasury is the regulatory body for the insurance sector. The brokerage houses, portfolio management companies and real estate investment companies are under supervision of the Capital Markets Board.

(i)  Increased Required Reserves

To be effective as of April 29, 2011, Foreign exchange (FX) and Turkish lira required reserve ratios have been increased for short-term liabilities.

FX required reserve ratios have been set as:

·   12 percent for FX demand deposits, notice deposits and FX private current accounts, FX deposits/FX participation account up to 1-month, up to 3-month, up to 6-month and up to 1-year maturities,

·    11 percent for FX deposits/FX participation accounts with 1-year and longer maturity and cumulative FX deposits/ FX participation accounts,

·    12 percent for other FX liabilities up to 1-year maturity (including 1-year),

·    11.5 percent for other FX liabilities up to 3-year maturity (including 3-year),

·    11 percent for other FX liabilities longer than 3-year maturity.

Turkish lira required reserve ratios have been increased for:

Demand deposits, notice deposits and private current accounts from

·    15 percent to 16 percent,

·    Deposits/participation accounts up to 1-month maturity (including 1-month) from 15 percent to 16 percent,

The ratios have remained unchanged for liabilities other than the abovementioned items.

The Central Bank of Turkey aims avoiding overheating in the economy by increasing the reserve requirements.  Based on the current data, liquidity amounting to approximately USD 1.4 billion and TL 1.5 billion will be withdrawn from the market.  The Central Bank of Turkey’s move immediately affected the market and interest rates on loans increased.  Given the fact that almost 91% of the deposits have a maturity shorter than three months, diversified reserve requirements are expected to extend average maturity of deposits.

(ii)  Implementation of New Code of Obligations

The Turkish banking sector and finance sector companies (i.e. leasing, factoring, consumer finance companies) heavily rely on standard agreements mainly protecting the interests of financial institutions rather than being customer friendly documents.

The New Turkish Code of Obligations No. 6098 brought the ‘general terms and conditions’ concept into general practice. The New Turkish Code of Obligations shall enter into force as of July 1, 2012 and as of implementation of the new provisions not only the consumers, who were under protection of the Consumers Law No. 4077 against unfair terms and conditions included in standard agreements, but also companies or commercial entities which are thought to have the bargaining power in order for avoiding the negative effects of the provisions in such standard agreement towards the financial institutions shall benefit from the protection.  The change in the legal concepts will force the banks to review their standard agreements as standard terms and conditions which are not negotiated and harming interests of one of the parties unnaturally shall be deemed as null and void, in case of a dispute.

Opportunities in the sector

Despite significant changes in controlling shares in the banking sector mainly driven by capital injection needs to the Turkish banks in order for meeting Basel II Criteria between 2005 and 2009 resulting in increase of share of foreign investment ratio in total banking sector equity, there is still room for foreign investment based on low consumer penetration (GDP/Total Banking Assets is less than 100%) and higher profitability compared to home country through share transfers from the existing foreign shareholders to new investors.  Banco Bilbao Vizcaya Argentaria S.A (BBVA) purchased total 24.89% shares of Turkiye Garanti Bankasi A.S. from General Electric and Dogus Holding A.S. at 2.62 billion USD, which can bee seen as a remark of ongoing interest to the Turkish Banking sector.

Apart from the banking sector, the regulatory bodies (namely the BRSA and the Treasury and the Capital Markets Board) are still keen to grant new licenses in financial leasing, factoring, asset management, consumer finance and insurance companies for green field investments.  Since the beginning of the year 2010, six factoring companies, two new asset management companies, one financial leasing company and a new life insurance company started their activities upon being granted activity licenses by the respective regulatory bodies.



Pekin & Bayar Law Firm was founded by Mr. M. Fethi Pekin in 1946.  Mr. Pekin was joined by his daughter Mrs. Şefika Pekin and his granddaughter Mrs.Selin Bayar, and the name of the family firm became Pekin & Bayar.

With its local and international experience of 65 years, Pekin & Bayar is one of the largest law firms in Turkey in both size and volume. The firm has liaison offices in Izmir, Ankara and Adana with 65 lawyers and 20 support staff as well as associations with international law firms.

The Firm has international practice and is widely recommended by its client ratings, which can be observed in various publications including IFLR, European Legal 500, Chambers and Partners, European Lawyer, Corporate INTL Martindale-Hubbell.  Cagri Goktas, LL.M is a senior associate at the firm and can be contacted on +90 212 359 5700 or by email at



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