Investing in Turkey: Dr Cigderm Kogar, Financial Regulation in Turkey- Moving Towards Convergence
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Transcript of Investing in Turkey: Dr Cigderm Kogar, Financial Regulation in Turkey- Moving Towards Convergence
Keynote Address “Investing in Turkey and the Growing Economy“
Financial Regulation in Turkey: Moving Towards Convergencewith Sound Macroeconomic Policies
Dr. Cigdem Kogar
Chief Representative of Central Bank of Turkey
Economic Counsellor to the Turkish Embassy in London
Middle East Association
18 March 2015, London
Content
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� Macrofinancial Environment: Key Points
� Macroprudential Policies & Sound Financial Sector
� Global Financial Regulatory Framework & Turkey
� G20 Presidency of Turkey: Key Issues & Priorities
� Prospects for the Turkish Economy : 2015-2017
Content
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� Macrofinancial Environment: Key Points
� Macroprudential Policies & Sound Financial Sector
� Global Financial Regulatory Framework & Turkey
� G20 Presidency of Turkey: Key Issues & Priorities
� Prospects for the Turkish Economy : 2015-2017
Key Points I
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� Turkey succesfully immuned from the long lasting global financialcrisis
� No penny spent for bank capitalisation, no bailout
� High and sustainable growh performance
� Single digit inflation towards to 5 percent target
� Effective management of volatile capital flows
� Rebalancing of the economy and improvement in current accountdeficit
Key Points II
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Thanks to
� Good restructuring of the regulatory framework and
� Rehabilitation of the banking sector after 2001 crisis
� Decisive and timely actions of Financial Stability Committee
� Effective implementation & coordination of macroprudentialpolicies
� Timely and promptly action of Central Bank of Turkey
� Fiscal discipline
Key Points III
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� Both high inflation and deflation are detrimental to growth
� The best conribution to growth from a central bank would be tomaintain price stability
� Reforms in human capital, labor market, technology, innovationand physical infrastructure are going to boost the growthpotential in Turkey.
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Content
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� Macrofinancial Environment: Key Points
� Macroprudential Policies & Sound Financial Sector
� Global Financial Regulatory Framework & Turkey
� G20 Presendency of Turkey: Key Issues & Priorities
� Prospects for the Turkish Economy : 2015-2017
Authorities Responsible from Financial Stability
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Relevant Authority Area of Responsibility
Central Bank of the Republic of Turkey (CBRT)
Implementation of monetary policy and exchange rate regime to achieve price stability and financial stability, management and supervision of payment and settlement systems
Banking Regulation and Supervision Agency (BRSA)
Supervision & regulation of all banks, financial holding companies, leasing , factoring and consumer finance companies as well as settingcode of conduct
Undersecretariat of Treasury Public finance, implementation of fiscal policy, and supervision and regulation of insurance companies
Capital Markets Board Supervision and regulation of securities brokers
Savings Deposit Insurance FundProtecting the rights and interests of deposit holders, and resolution of banks
Financial Stability Commitee
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Macroprudential Policy
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Instruments of BRSA
� Capital Adequacy• Capital buffer target
• Divident restriction policy
• Higher risk-weight for consumer loans andcredit cards
� General Provisions• Higher prv for retail loans
• Lower prv for SMEs & export loans
� Lending Policy• Guidance on lending policy
• Limits to credit card
• Ban on consumer FX lending (Treasury)
• Limitation on maturity for consumer loans &credit cards
� LTV & DTI ratios
Instruments of CBRT
� Reserve Requirements
• Maturity Based & Currency Based
• Leverage-Based
� Reserve Option Mechanism (ROM)
� Renumeration Policy of ReserveRequirements
� Cyclical Instruments: Policy rate,Interest rate corridor, TL&FXLiquidity Management
Turkish Financial System
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� Increasing asset size as per cent of GDP, but still room to grow
� Strong capital adequacy
� High asset quality
� Sustainable profitability
� High lending appetitate
� Good risk management policies
� Relying still largely on retail funding
� Well-defined regulatory framework
� Strong safety net and good coordination between authorities
� More resilient to shocks
Overview of the Banking Sector
Structural Indicators
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0
5
10
15
20
China
Russia
India
S. A
frica
Poland
Mexico
Turkey
Brazil
Indonesia
Capital Adequacy RatioNPL Ratio
Asset & Liability Composition Asset Size
Profitability & Roll Over Ratios
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Source: IMF FSI, as of 2014 Q2
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� 30/51 banks have a foreign share
� 30/51 banks• Subsidiary (21)• Branch (6)• Investment & development banks (3)
� 25 % of the asset size• 46 % including stock exchange
� From 21 countries all over the continents
• China, France, Germany, Greece, Iran, Israel, Italy,Japan, Kazakhstan, Kuweit, Libya, Lebanon,Netherland, Quatar, Russia, Pakisthan, Saudi Arabia,Scotland, Spain, UK, USA
Foreign Bank Participation in Turkey
Turkish Banks Outreach
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� Turkish banks operate wide range of 33 countries� 155 number of cross-border financial institutions
• 31 banks• 26 non-bank financial institutions• 87 branches• 11 Representative Office
Content
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� Macrofinancial Environment
� Macroprudential Policies & Sound Financial Sector
� Global Financial Regulatory Framework & Turkey
� G20 Presidency of Turkey: Key Issues & Priorities
� Prospects for the Turkish Economy : 2015-2017
Convergence to Global Financial Regulatory Framework
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Since 2009, Turkey is the Member of
� G20 (Turkish Presidency in 2015)
� Financial Stability Board (FSB)
� BIS Basel Committee
� The Islamic Financial Services Board (IFSB)
� Shareholder of The International Islamic Liquidity ManagementCorporation (IILM) (2010)
� Chair of the FSB MENA Region Consultative Group (2013-2015)
Basel III Framework
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Capital
Increase in the quality and level of capital
Common equity capital ratio (CET 1) 4.5%; Tier 1 capital ratio 6% ; Total capital 8%
Capital conservation buffer (CCB): 2.5% CET 1, CET 1 + CCB = 7%; Constraint on a bank’s discretionary distributions will be imposed when banks fall into the
buffer range.
Countercyclical capital buffer: 0%- 2.5% CET1, which is imposed when authorities judge credit growth is resulting in an unacceptable build up of systematic risk.
Leverage
Serve as a backstop to the risk-based capital requirement and contain system wide build up of leverage
Tier 1 capital / Total on and off-balance sheet exposures≥ % 3
LiquidityLiquidity Coverage Ratio (LCR)
LCR: (Stock of high quality liquid assets/ Total net cash outflows over the next 30 calendar days) ≥ 100
Net stable funding ratio (NSFR)
NSFR : ( available amount of stable funding/ Required amount of stable funding) ≥ 100
Risk Coverage
Securitisation: strengthens the capital treatment for certain complex securitisations.
Trading book: Significantly higher capital for trading and derivatives activities, as well as complex securitisations held in the trading book.
Counterparty credit risk: More stringent requirements for measuring exposure; capital incentives for banks to use central counterparties for derivatives; and
higher capital for inter-financial sector exposures.
Banks’ exposures to central counterparties: capital requirements for trade exposures and default fund exposures to a CCP.
Other Regulatory Issues
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under G20...
� Too Big to Fail• G-SIBs• D-SIBs• NBNI G-SIFIs• G-SIIs
� OTC Derivatives Market Reform
� Shadow Banking
under IFSB...
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Convergence of Turkish Financial Regulations
to International Regulations
Covergence of Turkey to International Financial Regulatons I
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Capital Regulations Effective
Regulation on equity’s of banks January 2014
Regulation on the measurement and assessment of the
banks’ capital adequacy ratioJanuary 2014
Regulation on capital conservation and countercyclical
capital buffers
January 2014
Ratios: phase in 2016-
2019
Leverage Regulation
Regulation on the measurement and assessment of the
banks’ leverage ratio
January 2014
Ratios: January 2015
Liquidity Regulation
Regulation on liquidity adequacy ratio of the banksJanuary 2014
Ratios: January 2015
Convergence of Turkey to International Financial Regulations II
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Too Big to Fail Status
Peer Review on Resolution Regimes 2015
OTC Derivatives Reforms
Foundation of a TR in Turkey exp. 2015
Legislation on CCP clearing of OTC derivatives published 2014
Regulations for CCP clearing of OTC derivatives exp.2015
Capital requirements for non centrally cleared
derivativesexp.2015
Content
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� Macrofinancial Environment: Key Points
� Macroprudential Policies & Sound Financial Sector
� Global Financial Regulatory Framework & Turkey
� G20 Presidency of Turkey: Key Issues & Priorities
� Prospects for the Turkish Economy : 2015-2017
Turkey’s Priorities for its G20 Presidency
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Three I’s of Turkish Presidency
� Inclusiveness :
• Low-income developing countries• SMEs • International financial architecture – IMF Quota Reform
� Investment :
• More emphasis to infrastructure investments• Developing affordable, feasible, risk sharing PPP models
� Implementation : policies including financial regulation,
international tax, growth strategies and international financial architecture
…Regarding Financial Regulations in G20
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� Finalize the new regulatory framework in line with the agreed financial regulationagenda
� Ensure timely, fully and consistently implementation of the new regulatoryframework
� Establish mechanisms for effective cross-border cooperation
� Analyze the regulatory outcomes and effects of the reforms
� Remain alert to new and evolving risks in the global financial system especiallythat may be arisen from outside the traditional banking system
� Draw attention corporate sector’s financing structure.
� In this regard, examine the factors that shape the liability structure of corporatesfocusing on its implications for financial stability.
FSB MENA Region Consultative Group (MENA-RCG)
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� Established in 2011 for 6 regional consultative groups, 6 meetingsheld so far
� Aim: to bring together financial authorities from FSB member andnon-member countries to exchange views on vulnerabilitiesaffecting financial systems and on initiatives to promote financialstability
� Members of MENA-RCG: Algeria, Bahrain, Egypt, Jordan, Kuwait,Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey andUnited Arab Emirates
� Chaired by Saudi Arabian Monetary Agency & Central Bank ofTurkey bi-annual basis, co-chaired by non-members Central Bankof Kuwait & Central Bank of Lebanon
Content
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� Macrofinancial Environment
� Macroprudential Policies & Sound Financial Sector
� Global Regulatory Framework & Turkey
� G20 Presidency of Turkey: Key Issues & Priorities
� Prospects for the Turkish Economy : 2015-2017
2023 Vision
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� Becoming one of the world's 10 largest economies by 2013
• gross domestic product (GDP) to $2 trillion • national income per capita to $25,000• boosting the country's exports to $500 bln.
� Three major factors behind Turkey's economic success:
� Clarity
� Consistency
� Commitment
High and Stable Growth Strategy of Turkey
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Transformation Programs for Innovative Production Structure &
Sustainable Growth
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Turkey : Medium Term Plan 2015-2017
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Dr. Cigdem Kogar
Chief Representative of Central Bank of Turkey Economic Counsellor to the Turkish Embassy in London
Middle East Association
18 March 2015, London
Keynote Address “Investing in Turkey and the Growing Economy“
Financial Regulation in Turkey: Moving Towards Convergencewith Sound Macroeconomic Policies