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Financial institutions in Turkey - Реферат

With the establishment of the BRSA, the Savings Deposits Insurance Fund (SDIF), which had been under the authority of the Central Bank, began to operate under the administration of the BRSA. However, with the enactment of Act No. 5020 on December 26, 2003, the management of the SDIF was separated from the management of the BRSA.

The decision-making body of the Agency is the Banking Regulation and Supervision Board (BRSB), which is appointed by the Council of Ministers and consists of seven members. Following the appointment of the members of the Board, the Agency commenced its operations as of August 31, 2000.

Banks in Turkey have the status of joint-stock companies and are subject to general controls under the provisions of the Turkish Commercial Code and of various tax laws. Besides, banks are subject to special supervision by the Banking Regulation and Supervision Agency. As the representative body of the banking sector, the Banks Association of Turkey (BAT) aims at protecting and promoting the professional interests of its members.

The BRSA exercises its supervisory authority on a direct and ongoing basis through the Board of Sworn Bank Auditors who is responsible for on-site examination of the banks in terms of legal considerations and financial soundness. Additionally, the banks' financial statements are audited by external auditors in accordance with internationally accepted accounting principles. Banks are also examined by their own auditors, who are required to submit quarterly reports to the BRSA.

Recently, the supervisory system has been further strengthened by legislative arrangements and a number of decisions taken in accordance with the standards of the prudential regulation exercised by the international banking community and in general covered the following banking related areas:

 Foreign exchange exposures,

 Capital adequacy,

Internal control and risk management,

 Lending limits

 Conditions to be met by bank owners,

 Bank ownership control in transfer of shares,

 Consolidated and cross-border supervision of banks,

 Accounting standards for financial disclosure purposes,

Prudential reporting and loan loss provisioning.

Moreover, during 2003 and 2004, several improvements have been realized in terms of regulative and legislative framework of the Turkish banking system;

 SDIF has been separated from the administration of the BRSA and its legislative framework has been renewed for the collection non performing loans from the debtors of SDIF banks.

 In July 2004, savings deposit insurance was limited to 50 billion TL (50 thousand New Turkish Lira (YTL), approximately 37.250 USD), which is expected to decrease the moral hazard effect.

 Risk based deposit insurance system has been settled.

 In order to increase intermediation costs, stamp duties and charges on loans were removed, deposit insurance premiums were decreased considerably and special transaction taxes on deposits were lifted. Furthermore the government has eliminated the Resource Utilization Fund on commercial loans.

 Accounting standards has been brought mostly in lines with International Accounting Standards.

Also some legislative changes and new targets are expected to realize in 2005;

 The new banking act, draft act on financial services, prepared by BRSA is expected to become into force. The draft act aims at setting a competitive environment, reducing the risks and bringing transparency in the banking sector.

 In order to improve the efficiency of supervision of the banking sector, risk based supervision model is being designed by BRSA.

 Given the recent technological innovations in financial sector more emphasis will be put into IT based audit systems.

 A new draft law on credit cards is being prepared by BRSA.

 It is expected that regulation and supervision power of non bank financial institutions to be transferred from Treasury of Turkey to BRSA

THE RECENT BANKING SECTOR RESTRUCTURING PROGRAM

Following the November 2000 and February 2001 crises, which had negative impacts both on the economy and the banking system, an extensive streamlining plan; Banking Sector Restructuring Program was started and announced to the public in May 2001 by the BRSA. The restructuring program was based on the following main pillars: (1) Restructuring of state banks, (2) Prompt resolution of SDIF banks, (3) Strengthening of private banks, and (4) Strengthening the regulatory and supervisory framework. Progresses achieved in these fields are presented below:

1) Restructuring of State Banks; Financial restructuring of state banks was completed, and correspondingly they began to make profits. Similarly, with the requirements of modern banking and international competition, significant steps have been taken within the framework of operational restructuring. Besides, the number of branches of the state banks which was 2,494 as of December 2000 was reduced to 2.236 as of December 2004; and the number of personnel which was 61,601 was reduced to 39.454.

2) Resolution of SDIF Banks; 21 banks were taken over by the SDIF between 1997 and 2003. After the BRSA began to operate on August 31, 2000 (in addition to the existing eight banks) the administration of 13 banks was assumed by the SDIF according to the resolutions of the BRSA. Of these 21 banks, 13 banks were merged; five banks were sold to domestic and foreign investors; and the licenses of two banks were revoked. By the end of December 2004 there was one bank which remained under the administration of the SDIF, Bayındırbank, the bridge bank for the resolution of the SDIF banks.

3) Strengthening the Private Banking System; Within the scope of the program focused on private banks, primary steps were taken towards strengthening the capital structures of private banks with their own resources and limiting market risks. 25 private banks were subjected to a three-phase audit process. Cash capital increases, correction of provisions set aside for non–performing loans, positive changes engendered in the market risk and valuation of securities were taken into account during these evaluations and accordingly, three banks were determined to have capital requirements. The capital requirements of these banks were provided either by their shareholders and or by the allocation of subordinated loans given by the SDIF upon BRSA decisions. With the improvement observed in profitability, the average capital adequacy ratio of the private banks was recorded at 28.2% as of December 2004.

4) Strengthening the regulatory and supervisory framework

Concurrently with the financial and operational restructuring of the banking sector, significant progress has been made in legal and institutional regulations. Within this context, regulations were issued to prevent risk concentration in loans, limit participation of banks in non-bank financial institutions and ensure preparation and disclosure of the balance sheets of the banks in compliance with international accounting standards. Among many other structural reforms, the banking reform intended to upgrade and modernize the current rules and in general covered the following banking related areas: capital adequacy, foreign exchange exposure, internal control and risk management, deposit guarantee schemes, accounting standards for financial disclosure purposes, prudential reporting and loan-loss provisions.

As a result, the restructuring program resulted in the following in the banking sector:

  • The banking sector entered a consolidation process.

  • The significance of state-owned and SDIF banks in the system has declined.

  • Financial risks in the banking sector have been reduced to manageable levels.

  • The capital structure of the sector has been strengthened.

  • The sector has re-entered a growth period.

  • The profitability performance of private banks has improved and state-owned banks have started to generate profit.

At the end of September 2004, the Turkish banks numbers were as follow:

Number of Banks

And lastly, let's say few words on this table. As we can see, after banking crisis in November 2000 and February 2001, the numbers of commercial banks as well as all other banks has declined significantly. If in 1999 number of commercial banks were 62, in 2004 it has declined to 35. These crisis's has huge negative impact on Turkish banking system, but nevertheless, it is still take the bull by the horns, and as many foreign banking giants as HSBC, Citibank, Fortis have entered the Turkish banking market it is sounds like it's has a potential capacity and bright future.

References:

www.tsrsb.org.tr

F.S. Mishkin "The Economics of Money, Banking and Financial Markets" Colombia University Press

http://www.byegm.gov.tr

http://www.sigortacigazetesi.com.tr

http://www.die.gov.tr

http://www.marsh.com.tr

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