Dr. Cihan Aktas Deputy Executive Director Banking and Financial Institutions Department Central Bank of the Republic of Turkey

Transcription

1 Dr. Cihan Aktas Deputy Executive Director Banking and Financial Institutions Department Central Bank of the Republic of Turkey Session III: Supporting Oman Real Economy and Entrepreneurships Oman Second Islamic Banking & Finance Conference

2 Oman Second Islamic Banking & Finance Conference Cihan Aktaş Deputy Executive Director Central Bank of the Republic of Turkey BANKING AND FINANCIAL INSTITUTIONS DEPARTMENT 17 March 2013

3 Outline Financial Stability, Real Economy and Participation Banking in Turkey Islamic Banks role in MENA Region 2

4 FINANCIAL STABILITY, REAL ECONOMY AND PARTICIPATION BANKING IN TURKEY

5 Using new policy tools to sustain financial stability and at the same time focusing primarily on price stability objective Price Stability Financial Stability Structural Tools Cyclical Tools

6 12 Why was it needed? Financial stability concerns mounting after global stimulus Credit Growth and Current Account Deficit (Percent, 12-Month Cumulative) CAD/GDP Δ Credit Stock/GDP (right axis) Source: CBRT. Last Observartion: December

7 New Policy Framework: Structural and cylical tools have been put into effect Structural Tools Maturity Based Reserve Requirements Price Stability Financial Stability Leverage Based Reserve Requirements Reserve Options Mechanism Structural Tools Cyclical Tools Cyclical Tools Policy Rate Interest Rate Corridor TL Liquidity Management FX Liquidity Management

8 47 Credit growth has been pulled down to reasonable levels in regard to financial stability Total Loan* Growth (Year on Year Change, Percent) Total Loan Growth Total Loan Growth (FX adjusted) 12 7 Source: CBRT. *Total banking sector, credit cards included, NPLs excluded. Last Observation: February 15,

9 Curbing credit growth has allowed to rebalance CAD Current Account Balance (Seasonally Adjusted, 3-Month Average, Million USD) CAD CAD (excluding energy and gold) Source: CBRT. Last Observation: December

10 Real effective exchange rate (REER) movement also has been closely monitored CPI Based REER (Base year: 2003) QE2 Policy Reaction - I REER 2 percent 1.5 percent EZ Crisis Policy Reaction - II 80 Source: CBRT.

11 Smooth GDP increase has been obtained during the process 4,75 Actual GDP (Base Quarter: 2008Q1, Seasonally Adjusted, Natural Logarithms) 4,70 4,65 4,60 4,55 4,50 4,45 4, Source: TURKSTAT, CBRT.

12 Average growth rates shows stable and resilient growth despite gloal downturn Growth rates (average) (average) Turkey Emerging market and developing economies Middle East and North Africa World Euro area Emerging market and developing economies World Middle East and North Africa Turkey Euro area Source: IMF, World Economic Outlook, October 2012

13 Strong export performance has been obtanied in the last decade Export Performance (Average Annual Growth Rate, ) 11 10, ,1 5,5 4 3,8 4,2 2 0 World Euro Area Devloping Asia MENA Countries Latin America Turkey Source: TURKSTAT, IMF World Economic Outlook April 2012

14 Market share shifting from EU to MENA enables to diversify risks and contributes stability of growth 60 Exports (exc. gold) Market Share (6-month cumulative, per cent) EU Other Europe North America Asia MENA Source: TURKSTAT Last Observation: November 13

15 100% Mena countries has increased their importance as a main trade partner of Turkey in recent years Export composition by region (as % of total export) Other Countries MENA Eurozone 90% 80% 70% % 50% 40% 30% 20% % 0% Source: TURKSTAT, CBRT

16 The financial sector is mainly dominated by Banks and basic indicators stress out continued resiliency Return on equity Return on Assets (right axis) 21 20,3 3,0 Non-performing Loans Ratio (%) ,7 2,8 2,6 Banking sector Participation Banks 18 2,4 Deposit Banks 17 2, ,27 4,7 3, ,8 2,0 1,8 14,5 1, Capital Adequacy Ratio (%) Tier 1 Capital Ratio (%) 17, ,

17 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2002/ / / / / / / / / / / / / / / / / / / / /12 Low market penetration: Turkish banking sector has considerable growth opportunies onwards 120 Banking Sector Assets (as % of GDP) Total Deposits and Loans (USD billion) Deposit Loan

18 CAR ratios indicate strong stance and resiliency Capital Adequacy Ratio (banking sector %) CAR Ratios 35,0 30,0 25,0 20,0 25,1 CAR legal limit(basel) target level(brsa) 30,9 28,2 23,7 21,9 18,9 18,0 20,6 19,0 16,6 17, ,73 Banking Sector 12,45 Participation Banks 17,87 13,9 15, ,0 5,0 5 0,

19 Turkish Participation Banking Experience 18

20 Participation Banking - Milestones Regulation with decree in force of law 83/7506. (Establishment of Special Finance Houses ) -Establishment of Special Finance House Association -Special Finance House Security Fund came into effect Transfer of Special Finance House Security Fund to Saving Deposit and Insurance Fund Inclusion within the Banking Law Transformation to Participation Banks from Special Finance Houses 19

21 Rapid growth Total Assets (Billion USD) 39 Funded Credits (Billion USD) Funds Collected (Billion USD) ,1% 2012 Market Share 6,0% 6,2% 4,2% 3,3% 6 8 2,5% Assets Loans Deposits 20

22 Mainly funded by deposits but need to access alternative funding Liability Composition (%) Sukuk Issuance Wholesale 1983 funding % Equity 10% Other 8% Funds Collected 68% US$100 m Kuveyt Türk US$350m Kuveyt Türk April 2010 Rent certificate (sukuk) regulation February 2011 Tax incentives for rent certificates August years 5.25% October years 5.875% 21

23 Large exposure to SMEs and neeed to diversify asset mix Asset Composition (%) Funded Credits (%) Other 8% Liquid Assets 20% Securities 4% Corporate 34% Households 19% Funded Credits 68% SME 47% 22

24 New sovereign sukuk issues provides to diversify asset structure and gives facility to liquidity management Sep st Int. Sovereign Sukuk : US$1.5 billion, 5.5 y, 2.8% Oct st TL Sovereign Sukuk : TL1.6 bn (US$0,9 bn), 2 y, 7.5% Feb nd TL Sovereign Sukuk: TL1.5 bn (US$0.8 bn), 2 y. 23

25 Plans to continue above sector growth will deliver results by maintaining current capital ratios Capital Adequacy Ratio (%) Participation Banks Banking Sector 24

26 ISLAMIC BANKS ROLE IN MENA REGION

27 Increasing path in Trade Volume Among Developing Countries Necessitates more Linkages 26

28 Inflation trends in MENA Region is more unstable 20 Inflation Outlook (end of period consumer prices, %) * World Euro area Emerging and developing economies MENA Turkey Source: IMF, World Economic Outlook, October 2012

29 Export performance should be developed in MENA Countries Export Performance (Average Annual Growth Rate, ) 11 10, ,1 5,5 4 3,8 4,2 2 0 World Euro Area Devloping Asia MENA Countries Latin America Turkey Source: TURKSTAT, IMF World Economic Outlook April 2012

30 New financial sector treatments should be implemented New Regulatory Structure Liquidity Constraints Adaptation of potential Challenges MENA banks readiness to Basel III Liquidity Coverage Ratio Need for Level 1 Assets 29

31 Treatment Framework New Regulatory Framework necessitates new formulas for Islamic Banks Level 1 or Level 2A Assets are needed Low Risk and High quality Shariah Compliance Risk should be minimized by Central Advisory Board Deep Financial market Origination of new products 30

32 Value of Islamic Banks Financial Inclusion Close linkages to real economy Value Major driving force-sukuk 31

33 Achievements of Islamic Banks Showed resilience in Global crisis US$1.3 trillion of total shariah compliant assets in Achievements Rapid growth momentum (19% per year since 2006). $131bn sukuk issuance with 54% increase than

34 Opportunities Scope for its development less than 1% the global financial industry even in jurisdictions with substantial Muslim populations largely concentrated on the banking sector (banking -93%, capital markets - 5% and takaful -2%) Potential to diversify into new growth areas such as trade and infrastructure financing especially in emerging economies. Meet the increased demand for simpler and more transparent products and back-to-basics finance. 33

35 Challanges Remain a form of financial intermediation that serves the real economy. Differences in accepted standards of Shariah compliance. IFSB, IDB, AAIOFI Challenges The regulatory treatment of the new and innovative Islamic financial solutions The legal framework that ensures attention to sustaining financial stability. 34

36 Challanges Lack of alternatives to conventional Repo agreements and treasury management practices Difficulties related with managing liquidity through Open Market Operations (OMOs). Lack of enough emergency facilities. Difficulties related with deposit insurance-takaful 35

37 Significance of Supervising Mikro prudential surveillance of Islamic finance should be supported by macro prudential framework The development of indicators for assessment of the soundness as well as vulnerability of the whole system Significance of supervision 36

38 To sum up... Robust and resilient PB is crucial for financial stability Have brought the idle funds into the system Provided alternative financial opportunities to manufacturers and businessmen using funds PBs and Islamic Banks can help financial inclusion Operating environment supports future growth but there are many challanges 37

39 Oman Second Islamic Banking & Finance Conference Cihan Aktaş Deputy Executive Director Central Bank of the Republic of Turkey BANKING AND FINANCIAL INSTITUTIONS DEPARTMENT 17 March 2013