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 The
financial system consists of the banking sector and other areas such as insurance,
leasing, factoring, and stock brokerage.
Most of the activities
taking place in both the money and capital markets are carried out by the
banks. Consequently, Turkey's economic and historical development dictates
that the financial system and the banking sector are virtually synonymous.
Turkish finance is principally founded upon a universal banking system. Banks
operate in accordance with international rules and practices and offer a wide
variety of services at their numerous branches.
Turkey's determination
to develop its relations with the European Union means that the country's
banking authorities have placed increasing emphasis on ensuring that their
regulations are in harmony with those in the Union. Turkey has already accepted
EU practices on capital adequacy.
In Turkey, commercial
banks are not allowed to engage in two types of activities: first, trading
goods or immovables for commercial purposes, and second, leasing. In addition,
investment and development banks may not accept deposits.
Turkey has an
active and open system made up of state-owned banks and private banks by the
end of 1998, excluding the Central Bank of Turkey, the number of banks operating
in Turkey increased to 75. Of the 75 banks, 50 were commercial banks and 15
were development and investment banks. 4 of the commercial banks were state-owned,
38 of them were privately-owned and the rest, 18 banks were foreign banks.
3 of the development and investment banks were state-owned while 9 of them
were privately-owned and the remaining 3 were foreign banks.
As of the end
1998, there were 18 foreign bank participations (excluding 3 development and
investment banks) operating in Turkey. Of these banks, 6 were established
in Turkey with foreign capital while 12 are branches. The existence of foreign
banks is a reflection of the progressive internationalisation of Turkey's
financial system. Despite their small market share, foreign banks have an
important place in the Turkish banking system because of the new concepts
and practices they have introduced.
In addition,
29 Turkish banks have individual or joint equity participations in 66 banks
and/or other financial institutions in Germany, France, the Netherlands, Switzerland,
the UK, Hungary, the Russian Federation, Kazahkistan, Azerbaijan, Uzbekistan,
Turkmenistan, Ireland, the Channel Islands, Bahrain, Luxembourg, Malta and
the Turkish Republic of Northern Cyprus by the end of 1998.
 Accelerated
by the liberalisation movements of the 1980s, a continuous modification and
diversification process took place in the entire economy and it was widely
reflected by the reforms made in the financial system. Some of these reforms
were the establishment of the Interbank Money Market, the introduction of
new tools for the regulation of liquidity, and legal arrangements to promote
the development of the capital market. These reforms enable banks to offer
new services by using new instruments in addition to their ordinary banking
activities. Turkish banks began increasingly operating in inter national markets,
dealing with instruments like swaps and forward agreements. The use of new
financial techniques, such as leasing and factoring, has also deepened the
system. As of the end of 1998, there are 104 leasing firms including special
finance institutions and development and investment banks, which give leasing
services.
The banking system
has undergone a rapid technological transformation in the past decade. In
order to increase the speed, quality and efficiency of the banking services
banks have concentrated on computerisation and automation projects. While
computers were used only for back office services in the beginning of 1980s,
they were being used later as on-line real time systems.1990 saw the beginning
of electronic banking in Turkey. Turkish banks have invested heavily in computer
processing and data transmission systems. Several banks have country-wide
electronic networks and a. number of them offer direct access terminals to
their major customers.
Most of Turkish
banks- including the Central Bank - were members of SWIFT (the Society for
Worldwide Interbank Financial Telecommunication). Turkey joined SWIFT in March
1989 and now has a regional processor in Istanbul.
 In
1992, an electronic funds transfer system was installed for direct crediting
in the banking system. Co-ordinated by the Banks Association of Turkey and
the Central Bank, the Turkish Interbank Clearing System (TIC) was launched
in April 1992. At the end of April 1999, there were 73 banks and 6 financial
houses in this system. The rapid growth of consumer banking is a defining
feature of Turkish banking in the early 1990s. Banks are increasing putting
emphasis on service quality because individual and retail banking are becoming
the most rapidly developing sectors of their business. It also reflects the
heightened competition among Turkish banks as they seek to develop high quality
services aimed to satisfy client needs better.
The introduction
of credit cards to Turkey dates back to the late 1960s, but Turkish banks
started issuing credit cards in August 1988. As of end 1999, a cumulative
7,118,358 credit cards have been issued. Of these cards, VISA and MASTERCARD
dominate the sector with a 99 percent share, whereas the rest consists of
AMEX, DINERS and other credit cards. When the credit cards are classified
as national and international cards, the latter gets a high proportion of
80 % percent in total.
The number of
banks extending consumer loans informing the Association was 30 at the end
of 1998 and the total amount of consumer credits reached 3.7 billion dollar.
The number of users was 1,878,462. The purchase of automobiles, consumer durables
and housing finance consist a high percentage in the total of consumer loans
in general. Banks are also extending consumer loans for financing individuals'
education, holidays and health expenses.
Another significant
development, which began in 1992 following the related notification of the
Capital Markets Board, was the "Asset Backed Securities" policy.
This financial instrument was intensively used by some Turkish banks during
1995. Another development includes the rapid spread of Automatic Telling Machines
(ATMs) and Point of Scale (POS) terminals. At the end of 1998, 7,471 ATMs
and 107,335 machines were installed. Moreover, nearly 19.3 million bank cards
have been issued, a reflection of the widespread acceptance gained by these
products.
During the mid-1980s,
the Central Bank organised new markets which not only facilitated the efficient
flow of funds within the banking system, but also helped to acquire a powerful
tool to monitor the overall reserve levels of the system. Upon the introduction
of the new markets, banks were able to strengthen their ability to control
the liquidity and maturity' structures of their assets and liabilities. The
first attempt to sell Government securities through periodic auctions started
in 1985. Following this, the Interbank Money Market for Turkish lira was established
in March 1986, Open Market Operations were started in February 1987, Foreign
Exchange and Foreign Banknote Markets were established in April 1989. During
1995 the Gold Exchange started to operate in Istanbul taking the place of
the Central Bank's Gold Market.
The banking sector
has been supported with the contributions of the above mentioned market and
has made more transactions by utilising new financial instruments in the capital
market including mutual funds, asset backed securities, Government papers
and private sector securities. Banks also distributed clients' portfolio risks
to the broader investment areas as far as financial alternatives were concerned.
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