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TOLGA ERDEMINTERNATIONAL FINANCE
Tiruneh Membere Workie, doc. Dr. Ing. PhD.
GLOBAL FINANCIAL CRISIS
ANDITS IMPACTS ON TURKEY
9 th December 2009
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95 96 97 98 99 00 01 02 03 04 05 06 07 08
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Reasons Behind the Crisis Loose Monetary Policies :
As a result of low real interest rates in thedeveloped economies, especially in USA,
during the period 2001 2005, investors
initiated leveraged transactions and used risky
instruments in order to gain high yields.
Lack of Transparency and Supervision:
Parallel to the widespread use of originate-to-
distribute business models, financial innovation
and technolobical advancements, complex
instruments were used widely, which in turn
complicated tracing of the investments and
risk analysis of these investments.
Problems in the Housing Sector :
Decline in house prices in USA that began in
the first quarter of 2006 adversely affected
household consumption demand and brought
about increase in the mortgage foreclosure rate.
Source : OFHEO, Standard&Poors
Housing Price Index (January 2001 July 2008, annual percentage change)
OFHEO
Case&Shiller
R eal Policy R ate in USA(January 1981 September 2008, percentage)
Soruce : FED, Bureau of Labor Statistics
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Uncertainty in financial markets transformed intoa trust problem between financial institutions.
In spite of correcting actions of regulatory bodies, arisingfinancial weaknesses of large financial institutions such as LehmanBrothers, Bear Stearns, Merrill Lynch, Fannie Mae, Freddie Mac,Washington Mutual Fund and AIG !!!
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Reasons behind the Crisis
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0
50
100
150
200
2007 Q2
and Earlier
07 Q3 07 Q4 08 Q1 08 Q2 08 Q3
Global Losses
USA
Europe
As of October total losses that the international financial system has suffered reached 659billion US Dollars.
IMF revised its global loss forecast from 945 billion US Dollars to 1.4 trillion US Dollars.
During the same period banks were able to raise up equity by 638 billion US Dollars.
Due to the financial turmoil banks faced significant losses and hence they tightened the creditstandards significantly.
Losses in the Banking and Financial Sector (billion US dollars)
Source : Bloomberg
W orld
Asia
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Foreign Exchange Rates Since the beginning of August fall in the value of Turkish Lira against US Dollars is close
to the average depreciation rate of emerging economies currencies.
In the second quarter of 2008 Turkeys risk premium increased more than that of other developing countries. Yet, a marked correction has been observed since July 2008.
0 0 20 2 0 0
Iceland Korunarazilian eal
ungarian orintolombian eso
South Af rican andolish Zloty
e ican esohilean eso
omanian LeySouth Korean on
Turkish Lirazech KorunaIndian upeeLatvian Lats
Lithuanian LTLussian uble
Ukraine ryvniaalaysian inggit
hillippine esoSingapore Dolar
Indonesian upeeTai an Dolar Isr alie Shekel
Source : OANDA
C hange in the Spot Foreign Exchange R ate vsUSD
(between 1 August 2008 and 16 October 2008, percent)
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Banking and Financial Sector
Capital Inflows and Current Account Deficit
Economic Activity
Exchange Rate and Inflation
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Potential Impacts on Turkish Economy:
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Until now, limited effects on banking and financialsector due to,
Considerable improvement in macroeconomic stability,
Prudent macroeconomic policies,
Conservative Regulation and Supervision,
Tools used by Central Bank of Turkey to calm the markets,
Tight fiscal policy and monetary policies.
1 0
Impacts on Turkish Banking and Financial Sector
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2 0 0 0 Q 1
2 0 0 0 Q 3
2 0 0 1 Q 1
2 0 0 1 Q 3
2 0 0 2 Q 1
2 0 0 2 Q 3
2 0 0 3 Q 1
2 0 0 3 Q 3
2 0 0 4 Q 1
2 0 0 4 Q 3
2 0 0 5 Q 1
2 0 0 5 Q 3
2 0 0 6 Q 1
2 0 0 6 Q 3
2 0 0 7 Q 1
2 0 0 7 Q 3
2 0 0 8 Q 1
2 0 0 8 Q 3
Banking Sector Compared to earlier periods Turkish
banking sectors resilience has improvedremarkably.
The sector does not hold a noteworthy FXshort position.
Net FX positions of the banks are at a lowlevel compared to their equity capital.
N et FX Position of the Banking Sector (2000 Q1 2008 Q3*, billion USD)
* As of 19 September 2008Source : BRSA, CBT
The capital adequacy ratio is well abovethe legal limit and the EU average of 12.1%.
Banks short-term FX liquidity and totalshort-term liquidity adequacy ratios remainabove the legal limits of 80% and 100%,
respectively.Strong capital structure and high profit to
equity ratios curtail banking sectorsvulnerability to the financial turmoil.
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12
1
20
2
28
1 2 - 0
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0 8 - 0
1 0 - 0
1 2 - 0
0 2 - 0 7
0
- 0 7
0
- 0 7
0 8 - 0 7
1 0 - 0 7
1 2 - 0 7
0 2 - 0 8
0
- 0 8
0
- 0 8
C apital Adequacy R atio(December 2005 July 2008, percent)
Target rate is 1 2%
Legal limit is 8 %
Operationalrisk included
Source : BRSA, CBT
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Banking Sector
11.5
3.5
4.9
3.73.9
2.8
0
2
4
6
8
10
12
14
2003 2007
R atio of N on-Performing L oans to Total L oans(2003 vs. 2007, percent)
* Developing countries : Argentina, Bra il, Bulgaria, C ech Republic, Croatia,Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Ukraine** Developed countries : France, Germany, Italy, United ingdom, USASource : IMF, CBT
Developed Countries**
Developing Countries*
Turkey
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Impacts on Turkish Banking and Financial Sector
Financial system in Turkey is bank dominated;
No toxic financial instruments in banks portfolio;
Shallow markets for complex financialderivatives.
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Inflation Developments in Turkey Thanks to achievements in price stability, Turkeys ranking in terms of inflation has
improved.
While in the 199 -2003 period, Turkey was among the 10 countries with highest inflationin the world, as of September declined to the 62 th position.
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120
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1 9 9 0
1 9 9 2
1 9 9
1 9 9 6
1 9 9
2 0 0 0
2 0 0 2
2 0 0
2 0 0 6
2 0 0
47 7
1 0
48 9
3 4
25 26
55
6 2
0
1 0
20
3 0
4 0
5 0
6 0
70
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8 *
* Most recent data as of September 200 8The total number of countries is 155. The ranking is in descending order.Source : IMF, TUR
STAT, CBT
InflationTargetingRegime
Inflation in Turkey (1980 2008*)
Turkey in the Global Inflation R anking (1997 2008)
*2008 forecast of the Central Bank of TurkeySource : IMF, TUR
STAT, CBT
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Effects on the Turkish Economy; Inflation As a result of global crisis commodity prices, especially food and energy prices, declined
drastically.
Falling commodity prices, moderating domestic demand and depreciation of Turkish Lirawill have favorable effects on the current account deficit and an improvement in thecurrent account deficit is expected in the months to come.
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W heat Price(1 January 2007 9 October 2008, US Dollars/Bushel)
Oil Prices(NYMEX WTI, 1 January 2007 9 OCtober 2008, US Dollars)
Source : Bloomberg
Source : Chicago Board of Trade
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Effects on the Turkish Economy; Inflation Favorable developments in commodity prices and deterioration in the domestic demand
suggest that inflation will improve in the following months.
However, recent depreciation of Turkish Lira may create upward pressure on the inflationrate in the short-run.
The items outside the domain of monetary policy such as food prices, food and energyprices contributed to annual inflation by 41% in 2004-2006 period, whereas their contribution rose to 63% in September 2008.
C omponents of Annual Inflation(percentage share)
*Food
:Food and Non-Alcoholic Beverages** Tobacco : Tobacco Products and Alcoholic Beverages
Source : TUR#
STAT, CBT
2004 200 6 Average September 200 8
140
Other Goods andServices
Food and Energy
3
6 2Other Goods and
Services
Food and Energy
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23.9
32.930.4
24.9
18.6
30.2
48.6
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10
20
30
40
50
60
B$ azil CzechRe % & ' lic
( ) &
0
h A
1
$ icaH& 2 3 a $ 4 Mexic ) P ) la 2 5
6
& $ 7 e 4
C umulative GDP Growth(Percentage change, 2001-2007)
Economic Growth
Source : TUR STAT, IMF World Economic Outlook
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0.0
0.1
0.2
0.3
0.4
0.5
0.6
0. 7
0.8
0.9
1 9 5 0
1 9 5 5
1 9 6 0
1 9 6 5
1 9 7 0
1 9 7 5
1 9 8 0
1 9 8 5
1 9 9 0
1 9 9 5
2 0 0 0
2 0 0 5
Export Performance
Source : WTO, CBT
Turkeys Share in W orld Exports(1950 2007, percent)
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5
10
15
20
25
30
35
40
0 1
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0 9
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1 1
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0 1
- 0 7
0 3
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0 5
- 0 7
0 7
- 0 7
0 9
- 0 7
1 1
- 0 7
0 1
- 0 8
0 3
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0 5
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35
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1 1
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0 1
- 0 7
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0 7
- 0 7
0 9
- 0 7
1 1
- 0 7
0 1
- 0 8
0 3
- 0 8
0 5
- 0 8
0 7
- 0 8
Foreign Trade
0
20
40
60
80
100
120
140
160
180
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
R eal Imports and R eal Exports Indices
(1982 2007, 2003 = 100)
Imports
Exports
Imports
Exports
Source :TUR STAT, CBT
Imports and Exports Growth
(January 2006 August 2008, 12-month rolling year-on-year change, in USD, percent)
Source :TUR STAT, CBT
Exports
Imports (ex-oil)
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Prospects for W orld Economy
Challenges for the world economic outlookCoupling,Further squee e in liquidity and increase in funding cost,Further deterioration of expectations and confidence ininternational markets,Slowdown in world economic growth,Unemployment,New architecture of financial markets
ConsolidationReshaping of financial institutions
Need for effective regulation and supervision,Coordination and cooperation among bothlocal and cross border authorities.
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Thanks for your attention!!!