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From Crisis to Stability: Restructuring of the Turkish Banking Sector. A. Teoman Kerman Vice President. “Strong Banking Sector, Strong Economy”. Outline. Structural problems Impact of the crisis Restructuring strategy Restructuring of the state banks Resolution of the SDIF banks - PowerPoint PPT Presentation
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From Crisis to Stability:From Crisis to Stability:Restructuring ofRestructuring of
the Turkish Banking Sectorthe Turkish Banking Sector
“ “Strong Banking Sector, Strong Strong Banking Sector, Strong Economy”Economy”
A. Teoman KermanA. Teoman Kerman
Vice PresidentVice President
2
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
OutlineOutline
Structural problemsStructural problems Impact of the crisisImpact of the crisis Restructuring strategyRestructuring strategy
Restructuring of the state banksRestructuring of the state banks Resolution of the SDIF banksResolution of the SDIF banks Strengthening of the private banksStrengthening of the private banks Improving the regulatory and supervisory Improving the regulatory and supervisory
frameworkframework Results of the restructuringResults of the restructuring Remaining challenges and BRSA agendaRemaining challenges and BRSA agenda Lessons learnedLessons learned
3
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Pre-crisis structural problemsPre-crisis structural problems Small scale and segmented market Small scale and segmented market
structurestructure19198080 19199090 19991999 20002000
Commercial Commercial BanksBanks
3131 5454 6262 6161
State State 88 77 44 44
PrivatePrivate 1919 2525 3131 2828
ForeignForeign 44 2222 1919 1818
SDIFSDIF -- -- 88 1111
InvestInvest. &. & Dev Dev.. BanksBanks 66 1100 1919 1818
State State 44 33 33 33
PrivatePrivate 22 44 1313 1212
ForeignForeign -- 33 33 33
TOTALTOTAL 3737 6464 8181 7979
4
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Licensing of banks 1980-1999 Licensing of banks 1980-1999 56 banks were licensed (42 deposit banks and 14 56 banks were licensed (42 deposit banks and 14
Development and Investment banks) Development and Investment banks) 15 of the 20 intervened banks were licensed in the 15 of the 20 intervened banks were licensed in the
post-1980 period; of these 13 were licensed in the post-1980 period; of these 13 were licensed in the 1990s.1990s.
Ownership details of intervened banks: Ownership details of intervened banks: 6 were media groups6 were media groups 12 were conglomerates12 were conglomerates Remaining 2 were cooperatives and pension fundsRemaining 2 were cooperatives and pension funds
Asset size of these banks were about 21 billion USD Asset size of these banks were about 21 billion USD while their liabilities were about 30 billion USD while their liabilities were about 30 billion USD (shareholders equity excluded)(shareholders equity excluded)
5
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Asset growth 1980-2000Asset growth 1980-2000
Asset Size of Turkish Banking System and Asset Size / GNP
152535455565758595
105115125135145155
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Bill
ion
$
30
40
50
60
70
80
90
100
Per
cent
age
Asset Size (Left Axis)Asset Size/GNP (Right Axis)
6
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Large FX open positions of Large FX open positions of private banksprivate banks
-10674
-8960
-2056-1487
-991
-1
-341 -454 -114
152
-954 -1049
140 110 321-86 -334 -394
252 122
-12000
-10000
-8000
-6000
-4000
-2000
0
2000N
ov. 0
0
Feb
. 01
June
01
Dec
. 01
Mar
ch 0
2
June
02
aug.
02
Dec
. 02
Jan.
03
Mar
ch 0
3
On-balance sheet positions Net Position
Crisis
7
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Crowding out by Crowding out by governmentgovernment
Note: 2001 and 2002 data reflect the results of the three-stage audit process and are inflation-adjusted.
6,410,3 10,6
21,4
35,0
40,8
53,7
47,042,5
30,6
20,022,8
05
1015202530354045505560
1980 1990 1995 2000 2001 2002
Per
cent
age
Securities / T. Assets Loans / T.Assets
8
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
State banks: pre-crisis State banks: pre-crisis conditionsconditions
Liquidity problemsLiquidity problems State banks with over-night liabilities State banks with over-night liabilities
of $14 billionof $14 billion Low asset qualityLow asset quality Inadequate risk assessment and Inadequate risk assessment and
management systemsmanagement systems Lack of good corporate governanceLack of good corporate governance
9
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Summing up: Pre-crisis Summing up: Pre-crisis conditionsconditions
BanksBanks Liquidity problemsLiquidity problems State banks with over-night liabilities of $14 State banks with over-night liabilities of $14
billionbillion Large open positions of the private banksLarge open positions of the private banks Significant share of holdings of government debtSignificant share of holdings of government debt Low asset qualityLow asset quality Inadequate risk assessment and management Inadequate risk assessment and management
systemssystems Lack of good corporate governanceLack of good corporate governance
Operating EnvironmentOperating Environment Major macroeconomic instabilityMajor macroeconomic instability High public sector deficitHigh public sector deficit Systemic distortions created by state and weak Systemic distortions created by state and weak
banksbanks
10
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
November and February CrisesNovember and February Crises
Sharp Sharp increaseincrease in in
interest ratesinterest rates
Sharp depreciationSharp depreciation of of
the Turkish Lirathe Turkish Lira
ContractionContraction in economic in economic
activityactivity
Maturity mismatch Maturity mismatch funding lossesfunding losses
Decline in the value of Decline in the value of securities portfoliosecurities portfolio
Short-positionsShort-positionsFX FX losseslosses
Asset QualityAsset Quality Credit RiskCredit Risk
Result:Result:
Erosion in Capital BaseErosion in Capital Base
Macroeconomic Shocks Impact on the
Banking Sector
11
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
The initial fiscal costs of the The initial fiscal costs of the Turkish Turkish
crisis have been highcrisis have been high
In addition, private banks In addition, private banks raised $2.4 billion raised $2.4 billion of capital from own resources.of capital from own resources.
Thus, there has been a significant burden-Thus, there has been a significant burden-sharing as $7.1 billion of the restructuring sharing as $7.1 billion of the restructuring costs were borne by the costs were borne by the private sector.private sector.
BillionUSBillionUSDD
Ratio to GDP Ratio to GDP (%)(%)
State Banks Duty LossesState Banks Duty Losses 19.019.0 12.812.8
Capital Support to State Capital Support to State BanksBanks
2.92.9 2.02.0
Resolution of SDIF Resolution of SDIF banksbanks
21.721.7 14.914.9
-Public Resources-Public Resources 17.017.0 11.711.7
-Private Resources-Private Resources 4.74.7 3.23.2
12
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Banking System Restructuring Banking System Restructuring ProgramProgram announced on May 15, announced on May 15, 20012001 Objective is to Objective is to eeliminate liminate distortions in distortions in the the financial sector financial sector and adopt regulations and adopt regulations to pto promotromotee an efficient, globally competitive an efficient, globally competitive and sound banking sectorand sound banking sector RRestructuring of the state banksestructuring of the state banks Resolution of Resolution of the the SDIF banksSDIF banks SStrengthening of trengthening of tthe private bankshe private banks Improving the Improving the regulatory regulatory and and supervisory supervisory frameworkframework
4 Main Pillars4 Main Pillars
But crises also provide But crises also provide opportunitiesopportunities
for major restructuring for major restructuring
Banking Sector
Restructuring Program
State Bank Reform
Strong Capital BaseCost Efficiency
•Structural Reform•Macroeconomic Stability•Decline in Public Deficit
Efficient Supervision
Market Discipline and Transparency
Sound Sound BankingBanking
Strong Strong Economy Economy
and and Sustainable Sustainable
Growth Growth EnvironmentEnvironment
Corporate Restructuring
Goal: Sound banking-strong Goal: Sound banking-strong economyeconomy
14
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Financial restructuring Financial restructuring of the state banksof the state banks
Liquidation of duty lossesLiquidation of duty losses ( $19 billion)( $19 billion)
Elimination of the over-night liabilities Elimination of the over-night liabilities ( From $14 billion in March 2001 to zero ( From $14 billion in March 2001 to zero
in 2002)in 2002) Strengthening of the capital baseStrengthening of the capital base
($2.9 billion)($2.9 billion) Appropriation in the budget for any Appropriation in the budget for any
subsidies provided through the state bankssubsidies provided through the state banks Determination of deposit rates uniformly Determination of deposit rates uniformly
with market rateswith market rates Efficient management of the loan portfolioEfficient management of the loan portfolio
15
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Appointment of a Joint Board of DirectorsAppointment of a Joint Board of Directors
Monitoring program for profitability, liquidity, Monitoring program for profitability, liquidity, and interest and interest marginsmargins
Establishment of internal control, financial Establishment of internal control, financial control and risk management unitscontrol and risk management units
Improved efficiency and productivity Improved efficiency and productivity As of December 2002, number of branches As of December 2002, number of branches
and personnel were reduced by 32% and and personnel were reduced by 32% and 51%, respectively, compared to December 51%, respectively, compared to December 2000.2000.
Operational restructuring of Operational restructuring of the the
state banksstate banks
16
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Intervention of the insolvent Intervention of the insolvent banks banks
by the SDIFby the SDIFNovember 2000
CrisisThe Government’s Declaration to The Government’s Declaration to
Expand the Scope of Expand the Scope of the Guarantee covering all liabilities of SDIF banksthe Guarantee covering all liabilities of SDIF banks
•Internal/external confidence loss to the financial system•Bank runs (Indonesian example)•Withdrawal of deposits from the banking system (Total deposit $75.5 billion)
Liquidation limited by the scope of the
existing deposit insurance
• $ 26 billion cash requirement instead of transferring funds in the form of Government Securities to the SDIF • Need for over-borrowing• Excessive pressure on interest rates• Impossibility of sustaining the debt service
Direct liquidation after takeover by the SDIF
•Legal process has been shortened compared to direct liquidation•Resolution process has been facilitated through deposit transfers •Some portion of employees were keptemployed through branch/bank sales
Resolution under the SDIF
17
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Rapid resolution of the Rapid resolution of the intervened banksintervened banks
20 banks were taken over by the SDIF20 banks were taken over by the SDIF1 bank in 19971 bank in 1997 Law Nr.3182Law Nr.3182
1 bank in 19981 bank in 1998 Law Nr.3182Law Nr.3182
6 banks in 19996 banks in 1999 Law Nr.3182 (1), 14.3 (1), Law Nr.3182 (1), 14.3 (1), 14.3/14.4 (4)14.3/14.4 (4)
3 banks in 20003 banks in 2000 14.3 (1), 14.3/14.4 (2)14.3 (1), 14.3/14.4 (2)
8 banks in 20018 banks in 2001 14.3 (3), 14.3/14.4 (5)14.3 (3), 14.3/14.4 (5)
1 bank in 20021 bank in 2002 14.3/14.414.3/14.4 The resolution of these banks through The resolution of these banks through
merger, transfer, sale or liquidation merger, transfer, sale or liquidation within 2 within 2 yearsyears
(As of today only 2 banks remain under SDIF)(As of today only 2 banks remain under SDIF)
18
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Resolution Process of the SDIF Resolution Process of the SDIF BanksBanks
Financial Restructuring;Financial Restructuring; Elimination of over-night liabilitiesElimination of over-night liabilities Reduction of FX open positionsReduction of FX open positions Determination of deposit rates uniformly with Determination of deposit rates uniformly with
market ratesmarket rates Auction of deposits of about $3bn to other Auction of deposits of about $3bn to other
banksbanks Transfer of liabilies to other banksTransfer of liabilies to other banks
With operational restructuring, significant With operational restructuring, significant reduction in the number of branches and reduction in the number of branches and personnelpersonnel
Excluding 2 remaining banks Excluding 2 remaining banks number of number of branches were reduced to 6, personnel to 583. branches were reduced to 6, personnel to 583.
With bank sales, a total of With bank sales, a total of 10,33710,337 jobs were jobs were kept. kept.
19
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Most of these funds were used for meeting the Most of these funds were used for meeting the deposit liabilities deposit liabilities (total $26 billion)(total $26 billion) of the of the SDIF banks through payments and/or transfer. SDIF banks through payments and/or transfer.
Initial costs of resolving the Initial costs of resolving the intervened banksintervened banks
Billion USDBillion USD
Public Funds (a-b)Public Funds (a-b) 1717.1.1 a.Bonds issued by Treasurya.Bonds issued by Treasury 1818..55
b.Bonds returned by the SDIFb.Bonds returned by the SDIF 11..55
Funds Provided from Private Sector Funds Provided from Private Sector (c+d)(c+d) 44.7.7
c.Deposit c.Deposit supportsupport fromfrom SD SDIIF revenuesF revenues 22.6.6
d.Capital d.Capital ssupport upport fromfrom SDIF revenues SDIF revenues 22.2.2
TOTALTOTAL 2121..77
20
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Legal obstacles to a rapid Legal obstacles to a rapid collection of assets of collection of assets of
intervened banksintervened banks
SDIF has collected a total of SDIF has collected a total of $$11..7 7 billion billion via direct collectionvia direct collection, , sale of sale of subsidiaries, tangible and intangible subsidiaries, tangible and intangible assets and bank sales.assets and bank sales.
Dragging legal porcedures and Dragging legal porcedures and lawsuits lawsuits are a major impediment to are a major impediment to rapid collection.rapid collection.
21
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Debt swap operationDebt swap operation: Private banks’ : Private banks’ FX open position to $1.5 bn in FX open position to $1.5 bn in December 2001 from $8.4 bn at end-December 2001 from $8.4 bn at end-20002000
Lower interest rate risksLower interest rate risks: Issuance of : Issuance of floating rate, FX indexed and FX floating rate, FX indexed and FX denominated government bonds denominated government bonds
Financial and Real Sector CouncilFinancial and Real Sector Council: to : to develop strategies to resolve NPLs and develop strategies to resolve NPLs and to restructure corporate debtsto restructure corporate debts
Özel BankalarÖzel BankalarStrengthening of the private Strengthening of the private
banksbanks
22
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Increase in potential credit riskIncrease in potential credit risk Deep-rooted structural problemsDeep-rooted structural problems Deeper than expected recession Deeper than expected recession Adverse international environmentAdverse international environment
Limited possibilities of liquidation of assets in Limited possibilities of liquidation of assets in current economic conditionscurrent economic conditions
Limited scope for raising new capital from Limited scope for raising new capital from domestic and foreign private investors domestic and foreign private investors
Vicious cycle of banking crisis-real sector crisisVicious cycle of banking crisis-real sector crisis
RationaleRationale
Recapitalization scheme for Recapitalization scheme for the private banksthe private banks
23
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
To ensure transparency and enhance confidence in To ensure transparency and enhance confidence in banking sectorbanking sector
To maximize capital contributions by banks’ ownersTo maximize capital contributions by banks’ owners
To encourage mergers and acquisitionsTo encourage mergers and acquisitions
To enable banks to start extending credits to real To enable banks to start extending credits to real sectorsector
To facilitate corporate debt restructuringTo facilitate corporate debt restructuring
To restore market disciplineTo restore market discipline
Recapitalization scheme for Recapitalization scheme for the private banksthe private banks
ObjectivesObjectives
24
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Start of the procedure with the completion of the legal framework01.02.02
01.04.02
Finalization of
the first audit
15.05.02
Announcement of
BRSA’s final assessment results to the banks
30.06.02
Realization of
capital increase
s
AssessmenAssessmentt PhasePhase
AssessmenAssessmentt PhasePhase
BankBank RecapRecap..
PhasePhase
BankBank RecapRecap..
PhasePhase
StateState RecapRecap..
PhasePhase
StateState RecapRecap..
PhasePhase
Realization of the capital support
by Public
30.04.02
22.04.02
Completion of appropriatene
ss control (second audit)
Submission of
Merger&
Acquisition plans (where
relevant) to
BRSA
Meetings of
General Assembl
ies
Application to BRSA
for support
Recapitalisation Recapitalisation Program Program PhasesPhases
25
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
The transparency of the banking sector has The transparency of the banking sector has increased.increased.
The ability of the public sector authority to The ability of the public sector authority to design and apply sound policies towards the design and apply sound policies towards the establishment of a healthy and efficient establishment of a healthy and efficient banking sector has been improved.banking sector has been improved.
Statistical Results:Statistical Results: The total capital needs of the 25 banks have been The total capital needs of the 25 banks have been
determined as 866 mil. $determined as 866 mil. $ After negotiations, 720 mil. $ of the capital needs After negotiations, 720 mil. $ of the capital needs
has been covered by banks and with other positive has been covered by banks and with other positive developments (e.i. decline in int.rates increased the developments (e.i. decline in int.rates increased the value of gov’t papers). Remaining capital needs was value of gov’t papers). Remaining capital needs was 146 mil.$.146 mil.$.
Özel BankalarÖzel BankalarResults of the Audit ProcessResults of the Audit Process
26
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Asset size of the recap banks decreased from Asset size of the recap banks decreased from 69 bil. $ to 66 bil. $ after auditing.69 bil. $ to 66 bil. $ after auditing.Important revisions in loans and NPL’s Important revisions in loans and NPL’s (loans decreased from 29,2 tril.TL to 24 tril. TL (loans decreased from 29,2 tril.TL to 24 tril. TL and NPL’s increased from 2,3 tril. TL to 7,8 tril. and NPL’s increased from 2,3 tril. TL to 7,8 tril. TLTLThe collaterals of loans have been examined The collaterals of loans have been examined and updated by experts and real estate and updated by experts and real estate valuaiton agencies. (declined from 35,8 tril. TL valuaiton agencies. (declined from 35,8 tril. TL to 30,4 tril. TL)to 30,4 tril. TL) Inflation Accounting: Inflation adjustments for Inflation Accounting: Inflation adjustments for the non-monetary assets realized.the non-monetary assets realized. After the auditing process the own funds After the auditing process the own funds increased and the risk weighted assetes increased and the risk weighted assetes decreased. As a result the sector’s average CAR decreased. As a result the sector’s average CAR realized as 14,8%.realized as 14,8%.
27
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Banks realized capital increase of Banks realized capital increase of $2.4 $2.4 billionbillion from their own resources. from their own resources.
As a result of the three-stage audit, 3 As a result of the three-stage audit, 3 banks were found to be capital banks were found to be capital deficient.deficient. 1 bank applied for state support and 1 bank applied for state support and
received subordinated debt to reach 9% received subordinated debt to reach 9% capital adequacy ratio. capital adequacy ratio.
Another bank’s capital need was covered in Another bank’s capital need was covered in cash by shareholders. The capital increase cash by shareholders. The capital increase process was finalized as of September 2002.process was finalized as of September 2002.
Pamukbank, with a capital deficiency of Pamukbank, with a capital deficiency of about $2 billion, was transferred to the SDIFabout $2 billion, was transferred to the SDIF
Özel BankalarÖzel BankalarResults of the Recap SchemeResults of the Recap Scheme
28
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Moving towards international standardsMoving towards international standards Regulations on capitalRegulations on capital Regulations on risk managementRegulations on risk management RRegulations on credit and subsidiaries’ limits egulations on credit and subsidiaries’ limits
and loan loss provisioningand loan loss provisioning AAccounting standards and independent ccounting standards and independent
auditingauditing Regulations on facilitating mergers and Regulations on facilitating mergers and
acquisitions acquisitions Regulations on special finance housesRegulations on special finance houses MoUs with other countries supervisory MoUs with other countries supervisory
authoritiesauthorities
Yasal ve Kurumsal DüzenlemelerYasal ve Kurumsal Düzenlemeler Improving the regulatory and Improving the regulatory and supervisory frameworksupervisory framework
29
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Consolidation in the banking sector Consolidation in the banking sector Number of banks declined from 81 in 1990 Number of banks declined from 81 in 1990
to 53 as of April 2003to 53 as of April 2003 Decline in the share of the State and Decline in the share of the State and
the SDIF banksthe SDIF banksDuring 2000-2002 the share of these banks
in total loans and deposits from 34.2% to 18% and 53.3% to 39.3%, respectively.
Increase in mergers and acquisitions Increase in mergers and acquisitions Total asset size of the mergers and Total asset size of the mergers and
acquisitions that took place in the sector acquisitions that took place in the sector is around $26.5 billionis around $26.5 billion
Results of operational Results of operational rrestructuringestructuring
30
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Results of financial Results of financial rrestructuringestructuring
Reduction of financial risks to Reduction of financial risks to manageable levels.manageable levels.
Improved transparency Improved transparency Improved profitabilityImproved profitability
In 2002 private banks generated a profit of $1.5 billion, state banks generated a profit of $646 million
Strengthened capital structureStrengthened capital structureCAR rose to 27.1% in December 2002 from 9.3% in December 2000.
31
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Effects on the private sectorEffects on the private sector
Istanbul ApproachA total of $3.8 billion of loans of 135
firms were restructured. Increased credit extensionCredits rose to $29.4 billion in 2002
from 23.4 billion in 2001.
32
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Although certain risks have been Although certain risks have been
decreased to more manageable decreased to more manageable levels...levels...
Interest Rate RiskInterest Rate RiskIssuance of bonds with variable interest rates Issuance of bonds with variable interest rates Distortions created by state banks and insolvent banks Distortions created by state banks and insolvent banks
eliminatedeliminated
Credit RiskCredit RiskAdequate classification of NPLs Adequate classification of NPLs after the after the 33-stage audit-stage auditRealistic assessment of cRealistic assessment of collateral ollateral Necessary provisions have been set asideNecessary provisions have been set aside
FX RiskFX RiskIssuance of FX-indexed bonds Issuance of FX-indexed bonds Implementation of floating rate regime Implementation of floating rate regime Improvements in risk management Improvements in risk management
33
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
...some risks still remain...some risks still remain Despite Istanbul Approach share of NPLs are still Despite Istanbul Approach share of NPLs are still
high high Total sector Loan Loss Ratio = 17.8%Total sector Loan Loss Ratio = 17.8%For 25 Re-cap banks this ratio is 10.1% in 2002 For 25 Re-cap banks this ratio is 10.1% in 2002 compared to 24.7% in 2001compared to 24.7% in 2001
Short-term maturity structure of depositsShort-term maturity structure of deposits
More than 90% of the deposits have a maturity of More than 90% of the deposits have a maturity of less than 3 monthsless than 3 months
57% of the deposits are in FX57% of the deposits are in FX High share of Government bonds in the balance High share of Government bonds in the balance
sheetsheetFor Private Banks in 2002For Private Banks in 2002Securities /Total Assest= 33.3%Securities /Total Assest= 33.3%
Low level of free capital Low level of free capital High level of operational costsHigh level of operational costs
34
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
BRSA’s agendaBRSA’s agenda
Rationalization of intermediation costsRationalization of intermediation costs
Establishment of financial holding companiesEstablishment of financial holding companies
Providing a level playing field in the sectorProviding a level playing field in the sector
Establishment of secondary markets for Establishment of secondary markets for
distressed debtdistressed debt
Incentives for rapid resolution of NPLsIncentives for rapid resolution of NPLs
Compliance with BASEL-II AccordCompliance with BASEL-II Accord
Risk based supervisionRisk based supervision
35
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Challenges faced Challenges faced by the BRSAby the BRSA
Legal obstaclesLegal obstacles Lack of political backing and consensus Lack of political backing and consensus Intense lobbying by pressure groupsIntense lobbying by pressure groups
Relationships between media and bank Relationships between media and bank groupsgroups
Public awarenessPublic awareness Institutional draw-backs Institutional draw-backs
BRSA - SDIF relationshipsBRSA - SDIF relationships Institutional development of BRSAInstitutional development of BRSA
Lack of secondary markets for distressed Lack of secondary markets for distressed debtdebt
36
““Strong Banking Sector, Strong Strong Banking Sector, Strong
EconomyEconomy””
Key Lessons: Restructuring Key Lessons: Restructuring instruments instruments
utilized by the BRSAutilized by the BRSA Introduction of blanket guaranteeIntroduction of blanket guarantee Voluntary debt swap (TL to FX indexed)Voluntary debt swap (TL to FX indexed) Tax incentives for merger and acquisitionsTax incentives for merger and acquisitions Tax incentives to lengthen maturity of depositsTax incentives to lengthen maturity of deposits Merge then resolve (sell or liquidate) strategyMerge then resolve (sell or liquidate) strategy Superpowers granted to the SDIF to accelerate Superpowers granted to the SDIF to accelerate
collectioncollection SDIF deposit auctionsSDIF deposit auctions Re-capitalization scheme and provision of Tier-II Re-capitalization scheme and provision of Tier-II
capital capital Agree on protocols to accelerate collection process Agree on protocols to accelerate collection process
and to minimise costsand to minimise costs Voluntary corporate debt restructuring (Istanbul Voluntary corporate debt restructuring (Istanbul
Approach) Approach)