Turkish Economy and Banking Sector

Transcription

1 Turkish Economy and Banking Sector ISBANK Economic Research Division (updated as of April 18, 216)

2 Recent economic developments Banking sector outlook Future prospects

3 7,36 7,597 9,247 8,561 1,444 1,3 1,428 1,459 1,822 1,395 9, Growth Turkey s GDP came in at 72 billion USD Turkish economy expanded by 4.% in GDP (billion USD) Real GDP Growth (%) Per capita GDP was at 9,261 USD Domestic demand contributed most to the growth in , 1, 8, Per capita GDP (USD) Contributions to GDP Growth by Expenditure Approach (% points) Net Exports Stocks Investment Consumption 6, 5 4, 2, Source: Turkstat, Isbank calculations 3 Economic Research Division April 216

4 4 Economic Research Division April 216 Growth Leading Indicators Better than expected GDP growth in the last quarter CA industrial production rose by 5.8% yoy in February Quarterly Real GDP Growth (yoy, % change) PMI signaled contraction in the manufacturing sector in March Q2 11-Q4 12-Q2 12-Q4 13-Q2 13-Q4 14-Q2 14-Q4 15-Q2 15-Q Capacity utilization rate (right axis,sa, %) Industrial production (CA,annual % change) Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Confidence indices 6 54 Manufacturing PMI 9 8 Consumer confidence Real sector confidence (right axis) =no change Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Source: Turkstat, Markit, HSBC, Datastream

5 Labor market Unemployment rate stood at 1.1% in January 216 Labor force participation rate has been at historic levels Unemployment Rate* (%) Labor Force Participation Rate* (%) Jan Jan million new jobs were created since 25 The share of services in employment has been increasing 3 Employment* (millions) 25* Jan-216* Jan- 216 Agriculture Industry Construction Services Agriculture Industry Construction Services Source: Turkstat, (*) Seasonally adjusted figure Economic Research Division April 216

6 Exports Exports doubled during the last 1 years Top 1 industries make up 6% of Turkey s total exports Exports (billion USD) Motor Vehicles Boilers and machineries Precious stones Knitted and crocheted goods Electrical machinery and equipment Iron and steel Non knitted and crocheted goods Articles of iron and steel Plastic and articles Mineral fuels Exports* (% of total) Turkey has been successful in diversifying export markets Demand from EU countries has recovered since Germany 2. UK 3. USA 4. Italy 5. France 6. Spain 7. Netherlands 8. Russia 9. Iraq 1. Israel Top 1 export markets % of total The share of first Germany 2. UK 3. Iraq 4. Italy 5. USA 6. France 7. Switzerland 8. Spain 9. UAE 1. Iran % of total The share of first EU Exports (% of total) Near and Middle East Source: Turkstat, (*) As of 215 Economic Research Division April 216

7 7 Economic Research Division April 216 Exports Exports to the UK and US increased Exports to Main Trade Partners (annual % change) UK US Spain Italy France Germany Iraq Russia Exports to Russia* million USD Exports to the United States* million USD Exports to Iraq* million USD 1. Fruits and Vegetables 2. Textile Products 3. Motor Vehicles 4. Clothing and thereof Articles 5. Base Metal Articles 6. Other , Iron and Steel 2. Textile Products 3. Motor Vehicles 4. Stone, Plaster, Cement etc. 5. Miscellaneous Manufactured Articles 6. Other 1, ,47 1. Cereals 2. Miscellaneous Manufactured Articles 3. Clothing and thereof Articles 4. Iron and Steel 5. Fruits and Vegetables 6. Other ,164 Total 3,593 Total 6,399 Total 8,558 Source: Turkstat, (*) As of 215, SITC Rev.3 classification

8 Imports Downward trend in imports Imports (billion USD) Fuel is the biggest import item of Turkey Mineral fuels Boilers and machineries Electrical machinery and equipment Motor Vehicles Iron and steel Plastic and articles Organic chemicals Optical Pharmaceutical products Precious stones Imports* (% of total) Around 3% of imports are from Russia, China and Germany Imports of intermediate good constitute the bulk of imports Top 1 import markets % of total 215 % of total Germany China Russia Germany Italy Russia France USA USA Italy China 7. UK France 7. South Korea Switzerland Iran Spain 1. Japan The share of first India 1. Spain The share of first Capital Goods Intermediate Goods Consumption Goods Capital Goods Intermediate Goods Consumption Goods 8 Source: Turkstat, (*) As of 215 Economic Research Division April 216

9 Current account deficit Excluding energy imports current account gave a surplus CAD was mainly financed by other investment and FDI CAD (% of GDP) Excluding Energy Imports (% of GDP) Other Investments Portfolio Investments Direct Investments CAD Financing of CAD (billion USD) Feb-16* Portfolio flows have weakened Reserve accumulation amounted to 114 billion USD Portfolio Inflows (12-month cumulative, billion USD) Debt Securities FX Reserves Gold Reserves Central Bank Reserves (billion USD) Equity Securities Feb.13 Aug.13 Feb.14 Aug.14 Feb.15 Aug.15 Feb Mar-16 Source: Turkstat, CBRT, (*) 12-month cumulative Economic Research Division April 216

10 FX exposure of the non-financial sector Net FX position of the non-financial sector Deposits make up the bulk of FX assets of corporates Jan Net FX Position of the Non-Financial Sector (bn USD) Long Term Net FX Position Short Term Net FX Position Net FX Position FX Assets of Non-Financial Companies (bn USD) Direct Investment Abroad Export Receivables Deposits Jan-16 Majority of FX loans are raised from domestic banks Most of the short-term external debt belongs to banks FX Liabilities of Non-Financial Companies (bn USD) Import Payables External Loans Domestic Loans Jan-16 Short-Term External Debt Stock on Remaining Maturity Basis* Jan-216 (bn USD) Share (%) Central Bank General Government Banks Credits FX Deposits Bank Accounts Branches and Affiliates Abroad TRY Deposits Branches and Affiliates Abroad Other Sectors Trade Credits Other Credits Public.1.1 Private Total Source: CBRT (*) External debt maturing within 1 year or less regardless of the original maturity. Economic Research Division April 216

11 Fiscal discipline Fiscal discipline has been the main pillar of economic policy Budget figures are widely in harmony with the year-end targets 7 Budget Deficit (% GDP) (bn TRY) 5 Budget Balance Primary Balance Maastricht criterion Q MTP Target Debt stock to GDP ratio declined to a very comfortable level Average cost of domestic borrowing was 1.9% as of March General Government Debt Stock (% GDP) Maastricht criterion Maturity (months) (right axis) Average Annual Interest Rate in Treasury Auctions (%) * 11 Source: Treasury, Ministry of Finance (*) Year-to-date Economic Research Division April 216

12 Monetary policy Exchange rate adjusted credit growth lost momentum Annual inflation dropped to 7.46% in March month cumulative CAD (bn USD) Annual Credit Growth (exchange rate adjusted, %, right axis) Consumer Price Index (annual % change) Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 CBRT lowered the upper bound by 25 bps in March Interest Rate Corridor (%) One Week Repo Rate (%) 14 CBRT Weighted Average Cost of Funding (%) O/N Interest Rate in BIST Interbank Repo Market Average cost of funding is declining CBRT Net Funding (7-day ma) Through Quotation (billion TRY) Through Auction (billion TRY) Difference between WACF and Policy Rate (%, right axis) Source: Turkstat, CBRT, BRSA Economic Research Division April 216

13 Nominal depreciation in local currency Financial markets Emerging market currencies have gained strength recently Emerging market equities have recovered during the last few months 12 USD vs Local Currencies (Dec. 31, 215 = 1) 125 Equity Indices (Dec. 31, 215 = 1) Turkey Brazil Russia Indonesia South Africa Turkey Brazil Russia Indonesia South Africa /31 1/14 1/28 2/11 2/25 3/1 3/24 4/7 8 12/31 1/14 1/28 2/11 2/25 3/1 3/24 4/7 13 Source: Datastream, Reuters As of April 14, 216 Economic Research Division April 216

14 Financial markets Government bond yields are on a declining trend Risk premiums of emerging markets remained relatively flat except for Brazil 17 5Y Government Bond Yields (%) 7 5Y CDS Spreads (bps) Turkey Brazil Russia Indonesia South Africa Turkey Brazil Russia Indonesia South Africa /31 1/14 1/28 2/11 2/25 3/1 3/24 4/7 1 12/31 1/14 1/28 2/11 2/25 3/1 3/24 4/7 14 Source: Datastream, Reuters As of April 14, 216 Economic Research Division April 216

15 15 Economic Research Division April 216 Main Challenges & Policy Measures High CAD and external financing requirement Macroprudential Measures LTV ceilings High risk weight for consumer loans Several limits on consumer loans and credit cards Tight Monetary Policy Incorporating financial stability into price stability objective Interest rate corridor Reserve Option Mechanism (ROM) Liquidity policy etc. Prudent Fiscal Policy Budget deficit to GDP ratio 1.2% Government debt to GDP ratio 32.9% Fed s policy normalization Geopolitical tensions Net FX positions of non-financial sector and Low savings rate Micro Reforms State contribution to private pension system 25 primary transformation programs with 1,2 action plans Fighting against informal economy Financial literacy strategy Investment incentive system Strategy documents for critical industries

16 Primary Transformation Programs Primary Transformation Programs in the Tenth Development Plan 1. Productivity growth in production 2. Reducing dependence on imports 3. Increasing domestic savings at the national level and preventing wastefulness 4. Istanbul international financial center 5. Rationalization of public expenditures 6. Raising the quality of public revenue 7. Improving the business and investment climate 8. Improving the effectiveness of the labor market 9. Reducing the informal economy 1. Development of the statistical information infrastructure 11. Commercialization of priority technology areas 12. Technology development and local production through better public procurement 13. Energy generation based on local resources 14. Energy efficiency improvement 15. Effective use of water in agriculture 16. Structural transformation in healthcare industries 17. Improvement in health tourism 18. Transition from transportation to logistics 19. Development of basic and occupational skills 2. Attracting qualified human resources from abroad 21. Healthy life and mobility 22. Preserving the family and dynamic population structure 23. Institutional capacity development at the local level 24. Urban redevelopment program to increase competitiveness and social cohesion 25. Improving international cooperation infrastructure for development 16 Source: Ministry of Development Economic Research Division April 216

17 Recent economic developments Banking sector outlook Future prospects

18 127, ,169 6,177 15,462 6,521 7, ,212 8,71 182,1 183,614 19, ,617 2,745 9,25 9,526 1, 213, ,63 216, ,976 1,44 1,981 11,93 12,125 12,185 12,196 Basic Indicators The number of banks operating in Turkey Asset composition of banking sector changed significantly Public Foreign Domestic Private 48 Number of Banks* Share in Total Assets Feb Feb Public Domestic Private Foreign Banking sector almost doubled its staff since 24 Number of Domestic Staff Banking sector expanded its branch network Number of Domestic Branches Feb Feb-16 Source: BRSA (*) Excluding the banks under the administration of the SDIF Economic Research Division April 216

19 Banking Sector - Asset & Liability Structure During the last decade, banks supported the real sector and diversified their funding sources Asset Composition (%) Liability Composition (%) Other Assets Cash+Banks Securities Other Liabilities Shareholder's Equity Securities Issued Money Market 4 Loans 15 Banks Deposits Feb Feb Source: BRSA Economic Research Division April 216

20 Soundness indicators Non-performing loans ratio came in at 3.1% in 215 Outperforming its peers in terms of asset quality NPL (%) NPL (%) 6. Russia Czech Rep. Poland Peer Group South Africa Mexico Brazil Turkey Indonesia Malaysia Feb Banks are very well capitalized CAR of Turkish banking sector is higher than most of its peers 28.2 Capital Adequacy Ratio (%) Indonesia Capital Adequacy Ratio (%) Czech Rep. Brazil Turkey Mexico Peer Group Target rate:12% Legal limit: 8% Malaysia South Africa Poland Russia Feb Source: BRSA, EBF, ECB, IMF Financial Soundness Indicators/Q4-214 Economic Research Division April 216

21 FX position FX position of the banking sector Banks are reaching long-term FX funding via eurobond issues 5 3 Net FX Position (billion USD) 3 25 Outstanding Eurobond Issuances of the Banking Sector (billion USD) Net On Balance Off Balance Banks did not face difficulty in rolling over long-term FX debt Feb-16 32% of total loans are in terms of FX Long-Term FX Debt Roll-over Ratio (12 month cumulative, %) Share of FX Loans in Total Loans (%) Feb Feb-16 Source: CBRT, BRSA Economic Research Division April 216

22 Significant growth potential 14 Despite the fast growth in banking sector assets, Assets (% GDP) penetration ratios are still low Banking sector comparison with Euro Area (214) Assets/GDP Loans/GDP Housing Loans/GDP Deposits/GDP EA Turkey Return on assets Return on equity Indonesia Mexico Malaysia Peer Group South Africa Brazil Turkey Czech Rep. Poland Russia ROA (%) Indonesia South Africa Czech Rep. Mexico Malaysia Peer Group Brazil Poland Turkey Russia ROE (%) Source: BRSA, European Banking Federation, BRSA, IMF Financial Soundness Indicators/Q4-214 Economic Research Division April 216

23 Recent economic developments Banking sector outlook Future Prospects

24 24 Economic Research Division April 216 Future prospects Turkey s - geographical location, - young population, - dynamic private sector, - sound fiscal picture, - and strong banking sector provide the sufficient cushion for Turkey against the tension in domestic political environment and changing global conjuncture. However, there are near term challenges that should be addressed including - reducing external deficits - raising domestic savings - continuing prudent fiscal policy - improving the communication strategy of Central Bank - and continuing structural reforms.

25 25 Economic Research Division April 216 Risks and Opportunities Ahead OPPORTUNITIES Lower oil prices Loose monetary policies by ECB and BoJ Stronger economic performance in US and UK Modest economic activity in EU RISKS Faster than expected rate hike by the Fed Geopolitical risks Adverse effects of volatility in oil prices Weak economic performance in Turkey s major export destinations Middle East and Russia Euro Area CPI Current Account Deficit/GDP GDP Growth CPI Current Account Deficit/GDP tourism revenues exports GDP Growth

26 26 Economic Research Division April 216 Future prospects Isbank Forecasts 214 (R) 215 (R) 216 Real GDP Growth (%) Current Account Balance (% of GDP) EU Defined General Government Debt Stock (% of GDP) Banking Sector Total Assets (% of GDP) CPI (%) (R) Realization

27 27 Economic Research Division April 216 ISBANK - Economic Research Division İzlem Erdem - Division Head izlem.erdem@isbank.com.tr Hatice Erkiletlioğlu - Asst. Manager hatice.erkiletlioglu@isbank.com.tr Eren Demir - Asst.Economist eren.demir@isbank.com.tr Gamze Can - Asst.Economist gamze.can@isbank.com.tr Alper Gürler - Unit Manager alper.gurler@isbank.com.tr İlker Şahin - Economist ilker.sahin@isbank.com.tr M. Kemal Gündoğdu - Asst.Economist kemal.gundogdu@isbank.com.tr LEGAL NOTICE This report has been prepared by Türkiye İş Bankası A.Ş. economists and analysts by using the information from publicly available sources believed to be reliable, solely for information purposes; and they are not intended to be construed as an offer or solicitation for the purchase or sale of any financial instrument or the provision of an offer to provide investment services. The views, opinions and analyses expressed do not represent the official standing of Türkiye İş Bankası A.Ş. and are personal views and opinions of the analysts and economists who prepare the report. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained in this report. All information contained in this report is subject to change without notice, Türkiye İş Bankası A,Ş, accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is copyright-protected. Reproducing, publishing and/or distributing this report in whole or in part is therefore prohibited. All rights reserved. Our reports are available on our website