Current Prospects and Challenges for Turkish Economy. Türkiye İş Bankası A.Ş. Economic Research Division August 2014 (updated as of 14 August 2014)

Transcription

1 Current Prospects and Challenges for Turkish Economy Türkiye İş Bankası A.Ş. Economic Research Division August 214 (updated as of 14 August 214)

2 Recent economic developments Banking sector outlook Future prospects Appendix

3 ,775 7,36 7,597 9,247 8,561 1,444 1,3 1,428 1,459 1, Growth Turkish economy surpassed 8 billion USD Average annual GDP growth during 24- was 4.9% GDP (billion USD) Real GDP Growth (%) Source: Turkish Statistical Institute (Turkstat) Source: Turkstat Rising per capita GDP Consumption has been the main driver of growth during 12, 1, 8, Per capita GDP (USD) 15 1 Contributions to GDP (% points) 6, 5 4, 2, -5-1 Stocks Net Exports Investment Consumption 3 Source: Turkstat Source: Turkstat, Isbank calculations

4 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul Q1 11-Q2 11-Q3 11-Q4 12-Q1 12-Q2 12-Q3 12-Q4 13-Q1 13-Q2 13-Q3 13-Q4 14-Q1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Growth Leading Indicators Industrial production lost momentum in May PMI figures started to show slowdown in economic activity 25 Industrial production index* and capacity utilization 85 2 Capacity utilization rate (%), right axis Industrial production IP: Last 3 years average: 5.3% Source: Turkish Statistical Institute (Turkstat) *calender adjusted yoy % change Consumer confidence index rose in July. Source: HSBC, Markit, Turkstat 1 st quarter GDP growth beat the expectations Confidence indices Real sector confidence Consumer confidence (right axis) Quarterly Real GDP Growth (YoY, % change) Source: Turkstat, CBRT Source: Turkstat

5 5 Growth s growth rate outpaced many of its emerging market peers in the last 1 years According to the IMF, is expected to grow at a relatively more moderate speed in the next five years Average Annual Real GDP Growth Rate (24-, %) Average Annual Real GDP Growth Rate Forecast ( , %) Czech Republic 2.5 Czech Republic Source: International Monetary Fund (IMF), World Economic Outlook (WEO) Database April 214

6 Labor market Unemployment rate has been in a declining trend after the crisis Labor force participation is increasing Unemployment Rate (%) Labor Force Participation Rate (%) Source: Turkstat Source: Turkstat 3.5 million new jobs were created during 29- The share of services in employment is increasing Employment (millions) Agriculture Industry Construction Services Agriculture Industry Construction Services 6 Source: Turkstat Source: Turkstat

7 / Exports Exports more than doubled during the last 1 years These 5 industries make up 39% of s total exports Exports (billion USD) Exports* (% of total) Vehicles Machineries, mechanical appliances Iron and steel Electrical Knitted goods machinery and equipment Source: Turkstat has been successful in diversifying export markets Source: Turkstat (*) The demand from EU countries started to recover in Top 1 export markets 24 % of total % of total 1. Germany Germany UK Iraq USA UK Italy France Italy Spain France Netherlands USA UAE Iraq Spain Israel Iran EU Near and Middle East Exports (% of total) The share of first The share of first Source: Turkstat Source: Turkstat 7

8 / Imports Imports reached 252 billion USD in Fuel is the biggest import item of Source: Turkstat Imports (billion USD) Mineral fuels Source: Turkstat (*) 12. Machineries, mechanical appliances Imports* (% of total) Iron and steel Electrical Motor Vehicles machinery and equipment Around 3% of imports are from, China and Germany Top 1 import markets Imports of intermediate good constitute the bulk of imports % of total 1. Germany Italy France USA China UK Switzerland Spain Japan 2.8 % of total China Germany Italy USA Iran Switzerland France Spain India Capital Goods Intermediate Goods Capital Goods Intermediate Goods The share of first The share of first Consumption Goods Consumption Goods 8 Source: Turkstat Source: Turkstat

9 9 Jan Feb-13 Mar Apr May-13 Jun Jul-13 Aug Sep-13 Oct Nov-13 Dec Jan-14 Feb Mar Apr-14 May-14 Jun-14 Jul /6 214/7 Current account deficit Energy imports are the major source of the CAD CAD is mainly financed by long-term loans and bond issues CAD (% of GDP) Excluding Energy Imports (% of GDP) Financing of CAD (billion USD) Other Investments Portfolio Investments Direct Investments Source: Turkstat Portfolio inflows were volatile during Monthly Portfolio Inflows (billion USD) 17. bn USD 13.7 bn USD bn USD bn USD Source: Central Bank of the Republic of (CBRT) CBRT built up significant amount of reserves FX Reserves Gold Reserves Central Bank Reserves (billion USD) Source: CBRT, BRSA. Source: CBRT

10 Policy measures Macroprudential measures - LTV ceilings - High risk weight for consumer loans - Several limits on consumer loans and credit cards Heavy political agenda Unorthodox monetary policy Incorporating financial stability into price stability objective - Interest rate corridor - Reserve Option Mechanism (ROM) - Liquidity policy etc. Impacts of tapering High CAD and external financing requirement Low savings rate Micro reforms - State contribution to private pension system - Fighting against informal economy - Financial literacy strategy - Investment incentive system - Strategy documents for critical industries FX short position of nonfinancial sector High credit growth Prudent Fiscal Policy - Lowering budget deficit to GDP ratio 1.2% in - Lowering gov. debt to GDP ratio 36% in 1

11 / /5 FX exposure of the non-financial sector Only a small fraction of the net FX position is short-term Net FX Position of the Non-financial sector (billion USD) / Net FX Position Short Term Net FX Position Source: CBRT Most of the short-term external liabilities belongs to banks Deposits make up the bulk of FX assets of corporates 12 FX Assets of Non-Financial Companies (bn USD) Direct Investment Abroad Export Receivables Securities Deposits Source: CBRT Majority of FX loans of corporates are raised from domestic banks Short-Term External Liabilities on Remaining Maturity Basis* May 214 (billion 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.2.1 Private Total (*) External debt maturing within 1 year or less regardless of the original maturity FX Liabilities of Non-Financial Companies (bn USD) Import Payables External Loans Domestic Loans Source: CBRT

12 Fiscal discipline Fiscal discipline has been the main pillar of economic policy Budget will continue to give primary surplus Budget Deficit (% GDP) Maastricht criterion Primary surplus (% GDP) Source: Treasury Debt stock to GDP ratio declined to a very comfortable level Source: Treasury Average cost of domestic borrowing is declining General Government Debt Stock (% GDP) Maastricht criterion Average Annual Interest Rate in Treasury Auctions (%) Maturity (days) (right axis) Source: Treasury Source: Treasury

13 13 Public debt lowered the public debt to GDP ratio remarkably in the last 1 years and has one of the lowest public debt to GDP ratios in the emerging markets universe General Government Gross Debt (% of GDP) (24 - percentage points change) General Government Gross Debt (% of GDP) () Czech Republic Czech Republic Source: IMF, WEO Database April 214

14 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Monetary tightening Monetary policy Credit growth started to slow down recently The effect of gold trade on CAD diminished CAD (bn USD) Macroprudential tightening Annual Credit Growth (%) (right axis) Monetary tightening Macroprudential tightening Monetary easing CAD Excluding Gold (bn USD) 8 CAD (bn USD) Source: CBRT, BRSA Monetary policy easing cycle since May 214 Source: CBRT Annual inflation have peaked in May Consumer Price Index (annual, %) July -14: 9.32% 4 2 Interest Rate Corridor (%) One Week Repo Rate (%) WACF (%) Source: CBRT Source: Turkstat

15 Financial markets 15 Source: Reuters Source: Reuters Turkish Lira depreciated fast after December 17 Czech Rep. Local Currencies vs USD (16 Dec. 28 Jan.214, % change) Nominal depreciation in local currency Rapid fall in Turkish stock market until the CBRT s rate hike Czech Rep. Equity Indices (16 Dec. 28 Jan. 214, % change) But recovered thanks to the CBRT s rate hike on January 28 Czech Rep. Local Currencies vs USD (28 Jan August 214, % change) Nominal appreciation in local currency Source: Reuters Since CBRT s decision, stock market also performed well Czech Rep Source: Reuters 5.5 Equity Indices (28 Jan August 214, % change)

16 Financial markets 16 Interest rates increased in EMs, the highest in Czech Rep. Source: Reuters 5Y Bonds (16 Dec. 28 Jan. 214, % points change) Source: Reuters After having increased fast following the corruption probe, Czech Rep. 5Y CDS Spreads (16 Dec. 28 Jan. 214, change) CBRT s rate hike soothed the surge in government bond yields Czech Rep Source: Reuters CDS spreads narrowed following the CBRT s rate hike Czech Rep. 5Y Bonds (28 Jan August 214, % points change) Source: Reuters Y CDS Spreads (28 Jan August 214, change)

17 Recent economic developments Banking sector outlook Future prospects Appendix

18 / /6 132, ,169 15,462 6,431 6, ,212 7, ,1 183,614 8,71 19, ,617 2,745 9,25 9, ,431 1, 215,93 1,44 1,981 11,93 12,51 Basic Indicators In 9 years number of foreign banks increased Asset composition of banking sector has changed since Public Foreign Private 53 Number of Banks Share in Total Assets Source: BRSA 24 Public Private Foreign Source: BRSA Public Private Foreign Banking sector almost doubled its staff since 24 Banking sector consistently expanded its branch network 25, Number of Domestic Staff 14, Number of Domestic Branches 2, 12, 1, 15, 8, 1, 6, 5, 4, 2, 18 Source: BRSA Source: BRSA

19 Asset composition Banks supported the real sector during the last ten years as shown by the increase in the share of loans in assets. Other Assets 12.2% Cash+Central Bank+Banks 15.1% 24 Loans 32.4% Securities 4.4% Other Assets Cash+Central 6.8% Bank+Banks 16.2% Securities 16.6% Loans 6.5% 19

20 2 Credit growth Private credit increased rapidly during the last 1 years However, private credit to GDP ratio is still well below peers Credit (% of GDP) (23-212, % points change) Credit (% of GDP) (%, 212) Czech Republic Czech Republic Source: World Bank

21 21 Liability composition Banks are diversifying their funding sources as well Securities Issued.2% Shareholders' Equity 15.% Other 6.% 24 Money Market 5.7% Banks 11.% Deposits 62.3% Shareholders' Equity 11.7% Securities Issued 3.4% Money Market 8.4% Banks 14.2% Other 8.4% Deposits 55.1%

22 /6 Czech Rep /6 Czech Rep. Soundness indicators Non-performing loans ratio is exhibiting a flat course Banking sector s asset quality is better than peers NPL (%) NPL (212) (%) Source: BRSA Monthly Bulletin Banks are very well capitalized Source: IMF Financial Soundness Indicators Turkish banking sector stands out with its high CAR Capital adequacy ratio (%) 18 Capital adequacy ratio (212) (%) Target rate:12% Legal limit: 8% Source: BRSA Monthly Bulletin Source: IMF Global Financial Stability Report

23 /6* /6 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan /6 FX position FX short position is negligible. Banks are reaching long-term FX funding via eurobond issues Net FX Position (billion USD) Net On Balance Off Balance Outstanding Eurobond Issuances of the Banking Sector (billion USD) Source: BRSA Source: BRSA Monthly Bulletin Banks didn t face difficulty in rolling over long-term FX debt Around 3% of total loans are in terms of FX Long-Term FX Debt Roll-over Ratio (%) Share of FX Loans in Total Loans (%) Source: CBRT (*) Annualized Source: BRSA Monthly Bulletin

24 Czech Rep. Czech Rep Significant growth potential Despite the fast growth in banking sector assets, penetration ratios are still low Assets (% GDP) Assets/GDP Loans/GDP Housing Loans/GDP Banking sector comparison with EU (212) EU Deposits/GDP Source: BRSA Monthly Bulletin, Turkstat Return on assets is higher than most of its peers, Source: European Banking Federation, BRSA as well as return on equity 3 ROA (212) (%) 24 2 ROE (212) (%) Source: IMF Financial Soundness Indicators Source: IMF Financial Soundness Indicators

25 Recent economic developments Banking sector outlook Future prospects Appendix

26 26 Future prospects s - geographical location, - young population, - dynamic private sector, - sound fiscal picture, - and strong banking sector provide the sufficient cushion for 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.

27 27 Future prospects Isbank Forecasts (R) 214 Real GDP Growth (%) Current Account Balance (% of GDP) EU Defined General Government Debt Stock (% of GDP) Banking Sector Total Assets (% of GDP) Real Interest Rate* CPI (%) (*) Average yield in Treasury s Turkish Lira domestic borrowing auctions in a year divided by annual CPI of the same year. (R) Realization

28 Recent economic developments Banking sector outlook Future prospects Appendix

29 29 Current account deficit international comparison s current account deficit has been historically high According to the IMF, current account deficit will continue to be at high levels over the coming five years Current Account Deficit (% of GDP) (24- average) Current Account Deficit (% of GDP) ( average) Czech Republic Czech Republic Source: IMF, WEO Database April 214

30 3 External debt international comparison In, external debt to GDP ratio increased mildly over the last 1 years As of, external debt to GDP ratio is at comparable levels with peers External Debt (% of GDP) (24-, % points change) External Debt (% of GDP) () Czech Republic 12.8 Czech Republic Source: Institute of International Finance (IIF)

31 31 Savings international comparison has the lowest domestic savings rate among peer group countries According to the IMF, domestic saving will continue to be low compared to peers in the coming five years Savings (% of GDP) (24- average) Savings (% of GDP) ( average) Czech Republic Czech Republic Source: IMF, WEO Database April 214

32 Competitiveness According to the Global Competitiveness Index, improved its ranking by 9 steps in the last 6 years and also made significant progress in terms of ease of doing business Global Competitiveness Index* (among 131 countries) -214 (among 148 countries) Change Czech Republic Peers' Average Ease of Doing Business* 27 (among 175 countries) 214 (among 189 countries) Change Peers' Average Czech Republic Source: World Economic Forum (*) Countries are ranked according to the -214 ranking. Source: World Bank and IFC (*) Countries are ranked according to the -214 ranking.

33 33 Reserve option mechanism Reserve Option Mechanism (ROM) ROM is a mechanism that provides the banks the option to hold a certain fraction of their TL RRs in FX and/or gold. ROM provides incentives for the banks to accumulate reserves in good times to use in bad times. To what extent the banks will use ROM will depend on the relative cost of using and not using facility - The CBRT can change this cost through Reserve Option Coefficients (ROC) - The cost will also depend on relative interest rates on FX vs TL funding Source: CBRT

34 Unorthodox monetary policy CBRT used FX reserves against the excess volatility in Turkish lira FX Sales (-) Export Credit (+) Q Q Q * 1.34 Q Q ** 4.24*** (*) Includes the direct currency intervention of January 214 (**) As of July 18,214 Amount (billion USD) (***) Provisional ROM FX 38,2 FX Required Reserves 34.6 Total 72.8 Source: CBRT 34

35 35 Banking sector Liquidity Banking sector is comfortable in terms of liquidity. 125 Liquidity requirement ratio (Dec. ) Up to 1 month (%) Sector Private Foreign Public Source: BRSA Monthly Bulletin

36 36 Türkiye İş Bankası A.Ş. - Economic Research Division İzlem Erdem - Manager izlem.erdem@isbank.com.tr Alper Gürler - Unit Manager alper.gurler@isbank.com.tr Hatice Erkiletlioğlu - Asst. Manager hatice.erkiletlioglu@isbank.com.tr Kıvılcım Eraydın - Economist kivilcim.eraydin@isbank.com.tr Bora Çevik - Economist bora.cevik@isbank.com.tr Eren Demir - Asst.Economist eren.demir@isbank.com.tr M. Kemal Gündoğdu - Asst.Economist kemal.gundogdu@isbank.com.tr Gamze Can - Asst.Economist gamze.can@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