High-level summit delves into Türkiye’s financial industry, govt economic road map

A landmark event on Friday featuring the participation of top officials and executives delved into Türkiye’s financial sector and the country’s road map aimed at encouraging production, investment and exports to curb inflation.

The “Future of Finance Summit” at the Turkuvaz Media Center in Istanbul highlighted the overall health of the financial sector, its adaptability to global changes, and its potential for sustained growth. The discussions emphasized the importance of financial stability, access to financing and regulatory measures to ensure a resilient economy.

The event gathered key policymakers from Vice President Cevdet Yılmaz and Treasury and Finance Minister Mehmet Şimşek to Banking Regulation and Supervision Agency (BDDK) President Şahap Kavcıoğlu, Presidential Finance Office head Göksel Aşan, and Capital Markets Board (SPK) President Ibrahim Ömer Gönül, as well as top banking executives.

Addressing the summit, Yılmaz emphasized the priority of creating a competitive financial ecosystem centered on the Istanbul Finance Center (IFC) to increase the export volume of financial services, and aligning with changing global and regional needs.

Inaugurated in April this year, IFC is a vast business district that promises to place the Turkish metropolis among the world’s most important financial centers.

“In this context, balancing our financial structure, primarily in banking, and increasing the share of capital markets are among our main goals,” Yılmaz said in a video message.

He highlighted the resolution of political uncertainties after the May elections, emphasizing the strengthening of political confidence and stability.

Türkiye has embraced more conventional policymaking after the vote and delivered aggressive monetary tightening aimed at arresting soaring inflation, reducing trade deficits, rebuilding foreign exchange reserves and stabilizing the Turkish lira.

The Central Bank of the Republic of Türkiye (CBRT) has lifted its one-week repo rate by 3,400 basis points since June, when President Recep Tayyip Erdoğan appointed former Wall Street banker Hafize Gaye Erkan as its governor to conduct a sharp pivot toward more orthodox policies.

After delivering a 250-basis-point hike on Thursday, the bank suggested it was closer to the finish line by saying it expects to “complete the tightening cycle as soon as possible.”

Yılmaz pointed out that with the well-coordinated 12th Development Plan, Medium-Term Program (MTP), Annual Program and budget, they have eliminated policy uncertainties, ensuring predictability.

He noted the lira’s support through economic stabilization, increased interest in lira assets, rising reserves and stable exchange rates contributing to the fight against inflation.

Yılmaz noted a consistent decline in monthly inflation readings since August, attributing it to the tightening policy. He emphasized that reducing financing costs would support both inflation control and a path for the economy to grow while also supporting investments and exports.

The vice president expressed confidence in a significant decrease in annual inflation by the second half of 2024.

The CBRT expects inflation to rise from nearly 62% last month to 70-75% in May, before dipping to about 36% by the end of next year as tightening cools prices.

“Inflation has evolved toward a path compatible with our targets for 2024, and the loss of momentum in inflation has been seen very clearly,” said Yılmaz.

Yılmaz drew attention to the robust coordination between monetary, fiscal and revenue policies, stating their commitment to prioritizing structural transformation. He asserted that the government’s macroeconomic and fiscal policies, coupled with steps in the financial services sector, have created a cycle supporting macroeconomic stability in an improving financial environment.

The vice president also addressed the banking sector’s strong capital structure and profitability, highlighting the importance of selective financing amid tightening monetary policy.

Emphasizing their vision to transform Istanbul into a regional, and eventually global, financial center, Yılmaz said they formed a strategy and started implementing an action plan for the Istanbul Finance Center (IFC).

“In this context, one of our top priorities is to make new regulations in participation finance (Islamic Banking),” he noted. Yılmaz underlined their commitment to deepen the financial system and develop Islamic Banking as crucial for increasing the export volume of financial services.

In conclusion, Yılmaz reiterated the government’s dedication to enhance the country’s economic and financial gains, continuing their growth strategy focused on investment, employment, production and export in alignment with a healthy financial system.

In his speech at the summit, BDDK’s Kavcıoğlu emphasized the crucial role of the financial sector, especially the banking industry, in accelerating capital accumulation and directing resources to efficient areas for sustainable economic growth.

Kavcıoğlu underscored the significance of easy access to financing options for real sector companies to contribute directly to growth through production.

For his part, Finance Office head Aşan warned about the threat of global indebtedness to the financial system, asserting that a financial problem affects all systems.

Aşan stressed the importance of regulatory measures to open up the sector and contribute positively, citing the Istanbul Finance Center (IFC) as a project that will add significant value.

Banks Association of Türkiye (TBB) President Alpaslan Çakar provided insights into the Turkish banking sector, stating that its total assets represented 93% of the national income, reaching TL 22 trillion ($753 billion) in size.

“The banking sector has a balanced and healthy balance sheet. Our sector’s balance sheet is predominantly in Turkish lira. About 65% of our assets and 56% of our resources are denominated in lira. As of today, the deposit total is TL 14.4 trillion,” Çakar said.

He highlighted the sector’s adaptability to changes in 2023, underscoring its compliance with international regulations and its potential for significant development compared to global averages.

Istanbul Finance Center (IFC) General Manager Ahmet Ihsan Erdem revealed plans to fully implement the IFC in 2024 after the completion of the banking phase.

The center will be a new home to most of Türkiye’s most prominent financial institutions and authorities, including the CBRT, the Borsa Istanbul Stock Exchange (BIST), BDDK and SPK.

Erdem emphasized Istanbul’s position as a hub for trade and logistics over the past two decades and envisioned the IFC as a regional and global financial center.

In his speech, SPK President Gönül highlighted the record-breaking increase in stock market investors, surpassing 8.5 million, emphasizing efforts to secure financing from capital markets for a broad spectrum of sectors.

Gönül revealed that 54 companies have gone public as of Dec. 15, generating some TL 79.3 billion in funding. In 2022, there were 40 initial public offerings (IPOs) worth about TL 19.3 billion, compared to a record of 52 listings in 2021, according to the BIST data.

Halkbank General Manager Osman Arslan hailed the positive results of the government’s economic road map focusing on production, high-value investments and development within the scope of the medium-term program.

Arslan acknowledged the challenges faced in 2023 due to natural disasters but, commended the swift recovery supported by the coordination of public and private banks.

Recalling the latest CBRT rate hike, Işbank General Manager Hakan Aran emphasized the need for careful risk management in the upcoming period. Aran stated that to sustain positivity, it is crucial to enter a phase of consultation.

Assessing current risks as manageable at a reasonable level, Aran acknowledged that Türkiye faces challenges in elevating savings, emphasizing the utmost need for external sources.

Mehmet Ali Akben, general manager of Vakıf Katılım, drew attention to the role of participation banking in the financial sector, noting that due to sensitivity in Türkiye when it comes to interest rates, individuals and entities previously outside the financial system are now being integrated.

With a balance sheet approaching TL 2 trillion, Akben highlighted that participation banks not only respond to banking needs but have successfully created a holistic ecosystem through their development and rapid growth.

Providing insights into Denizbank’s activities, General Manager Hakan Ateş expressed optimism about the current century, emphasizing the importance of placing money in its proper context.

“Capital markets are rapidly advancing, and I hope they continue to be healthy,” Ateş said.