Azerbaijan, Baku, Nov. 28 /Trend/
Leyla Abdullayeva, Trend analytical centre expert
The Azerbaijani banking sector is expected to have great changes in 2013. These will be the processes of banks' consolidation, small players' withdrawal from the market, the possible beginning of the International Bank of Azerbaijan's privatization process, foreign brand-name banks' appearance.
The new requirements of the Azerbaijani Central Bank (CBA) toward the capital of banks operating in Azerbaijan will be the impetus for this transformation. According to CBA Board decision as of July 25, the requirement to the minimum total capital of existing banks and the capital of newly established banks increased from current 10 million manat ($12.7 million) to 50 million manat ($63.7 million). The new regulation for the minimum total capital of existing banks will take effect on January 1, 2014.
History shows that many developed countries, such as Turkey, which could achieve something it has today as a result of long-term banking reforms, experienced these changes once in the banking sector.
Turkey is currently experiencing another wave of privatization of the banking sector. This process has actively involved foreign investors whose interest in the Turkish banks increased after the global financial crisis.
When the largest players in the U.S and European financial markets were forced to refinance the banking sector, the Turkish banks have not only confirmed their strength and stability, but also continued supporting the real sector of economy. In the midst of the crisis, the assets of the Turkish banking sector increased by 13 percent and profit - by 50 percent, and return on equity was 18 percent in 2009.
Turkish banking sector shows positive results up to now. According to the Turkish Central Bank, profits of the banking sector in the country increased by 46 percent in the third quarter of 2012 compared to the same period in 2011.
This trend, as well as the measures, taken by the Turkish government within the economic stimulation programs, play an important role in foreign investors' decision-making on entering the Turkish banking market. This interest is evident not only through participation in the privatization of state-owned banks, but also in the desire to open the affiliates or subsidiaries by foreign banks in the country.
Such some big players in global financial markets with assets exceeding $ 100 billion, as the Dutch Rabobank, Industrial and Commercial Bank of China (ICBC), the Japanese Mitsubishi Bank, Italian Intesa Bank and the British Standard Chartered Türkiye were among the banks that applied to the Turkish Central Bank for licenses.
The process of consolidation and privatization of state-owned banks started in Turkey in 2001 as part of fulfilling the commitments to the IMF for getting loans. The process of attracting foreign capital in the Turkish banking system started from this period. In 1990 the share of foreign banks in assets of the banking system amounted to three percent, in 1995 - four per cent, in 2000 - five per cent, while in 2007 it rose to 16 per cent. At present, the share of foreign participation in the total capital of the Turkish banking sector is 16.7 per cent.
The government and the Central Bank do not worry about increasing number of foreign banks in the Turkish market. The government and the Central Bank believe that the process does not pose any risk to the Turkish banking system. Moreover, despite the increased foreign capital, Turkish banks still hold a dominant position in the market of banking services.
A distinctive feature of the Turkish banking system is the prevalence of universal banks that offer the full range of credit and financial services. As the result of active privatization and consolidation processes, private commercial banks hold the leading positions on number and volume of their assets in Turkey. According to the state agency for regulation of the banking sector in Turkey, the assets of the banking sector in August 2012 increased by seven percent, the volume of given loans - by ten percent, revenues - by 19.4 percent compared to August 2011. At present, around 45 banks operate in Turkey.
The specific character of the privatization processes in Turkey stipulates that the condition of privatization is the desire to maintain state control of a controlling stake, as it is observed in the privatization of Halkbank. It is expected that the privatization of the bank will begin within six months. After its denationalization, the process will begin toward Vakıfbank, and then Ziraat Bankasi, which is 100 percent state owned bank. Previously, Deniz Bank was privatized. It was purchased by Russian "Savings Bank" for 6.47 billion Turkish liras.
An interesting fact is that the number of banking markets is being reduced in the world financial system today. The number of banks is expected to be increased to 60 in Turkey for the nearest years. The Turkish banking sector is quite young compared to developed countries, but the level of development in this country suggests that others can learn a lot from this country.