Turkey - Banking and securities

The Central Bank of the Republic of Turkey was founded in 1930 as a privileged joint-stock company. It possesses the sole right of note issue and has the obligation of providing for the monetary requirements of the state agricultural and commercial enterprises by discounting the treasury-guaranteed bonds they issue. All foreign exchange transfers are handled exclusively by the Central Bank, which operates the clearing accounts under separate agreements with foreign countries. The bank has 25 domestic branches, plus a banknote printing plant and foreign branch offices in New York, London, Frankfurt, and Zürich.

As of 2002, Turkey had 69 banks. Banks supervised by the Central Bank play a declining role in the banking system, but 49% of total bank assets are still concentrated in three state-owned banks. The major private banks are mostly linked to industrial conglomerates, such as the Cukurova Group, owning the Construction and Credit Bank (Yapi ve Kredi Bankasi), Pamukbank, and Interbank; and the Sabanci Group, which owns Akbank. Several Western commercial banks are also active, as are some Middle Eastern trading banks. There are also three socalled special finance houses, which have adopted Islamic banking practices. Many observers predict large-scale bank consolidation as Turkey continues liberalizing its economy.

The five big state banks suffer from serious structural problems. These include overstaffing, political interference, and non-performing loans to other state institutions, which are not recorded as such. Many small and medium-sized banks are also poorly run. Some of these were badly hit by the financial crash of early 1994, and three were forced to close. A widespread shakeout in the banking system is regarded as likely in the longer term.

Two of Turkey's most important banks, the Sümerbank and Etibank, are also state investment-holding companies. Another important state financial institution is the Agricultural Bank, which supplies credit to the farm population. The largest private commercial bank is the Business Bank. Another private bank, the Industrial Development Bank of Turkey, stimulates the growth of private industrial development and channels the flow of long-term debt capital into the private industrial sector for both short- and long-range development programs. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $8.7 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $86.8 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 91.95%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 60%.

The first securities market in the Ottoman Empire was the Dersaadet Securities Exchange, established after the Crimean war in 1866. The Istanbul Stock Exchange opened in 1985 and the Istanbul Gold Exchange commenced operations ten years later.

Turkey's only securities exchange is located in Istanbul. Because of the shortage of foreign exchange, there are no transactions in foreign bonds and stocks. With few exceptions, trading is in government bonds. Virtually all securities issued by private enterprises are sold privately through personal arrangements between buyers and sellers. Still, the Istanbul Stock Exchange has developed impressively, if not erratically, in recent years. In 2001, there were 310 companies listed, the most in the exchange's history. Total market capitalization was $47 billion, and trading value was nearly $78 billion with a sky-high turnover rate of 162%.