UPDATE - Turkish banking sector net profit hits all-time high

UPDATES WITH COMMENTS FROM EXPERTS, BACKGROUND

By Muhammed Ali Gurtas

ANKARA (AA) - Turkish banking sector's annual net profit reached 49.1 billion Turkish liras ($13 billion) in 2017, hitting an all-time high profit, according to the Banking Regulation and Supervision Agency (BDDK) on Tuesday.

Last year, the net profit of Turkish banks in 2017 recorded a yearly increase of 30.8 percent, compared with 37.5 billion Turkish liras ($10.7 billion) net profit over the previous year, the banking watchdog said.

As of December 2017, the total assets of Turkey's banking sector were 3.26 trillion Turkish liras ($862.7 billion), rising 19.4 percent, year-on-year.

Loans given by banks -- the biggest sub-category of assets -- stood at 2.1 trillion Turkish liras ($555.8 billion) at the end of last December, compared with 1.73 trillion Turkish liras ($494.5 billion) in the same month of 2016.

Deposits held at the country's banks amounted to 1.71 trillion Turkish liras ($453.4 billion) as of Dec. 31, indicating an 18 percent rise on a yearly basis.

The banking sector's regulatory capital to risk weighted assets ratio -- a significant indicator to figure out minimum capital requirements of lenders -- was at 16.8 percent last month, up from 15.5 percent in December 2016.

The BDDK figures showed the ratio of non-performing loans to total cash loans -- another crucial indicator that shows how healthy the banking sector is -- also showed a recovery last year, standing at 2.95 percent as of December 2017, down from 3.24 percent in the same month of 2016.

In Turkey, nearly 50 state/private/foreign lenders, including deposit banks, participation banks, development and investment banks had nearly 11,600 domestic and overseas branches with more than 208,000 employees at the end of last year.

On Dec. 29, the last business day of last year, the U.S. dollar/Turkish lira rate was 3.79, while the average exchange rate was 3.65 last year and 3.03 in 2016.

"Banks met all the financing needs of the producers in the real sector plus consumers of the household sector, and constitute the backbone of the economy," Ziraat Bank’s economist Bora Tamer Yilmaz told Anadolu Agency.

Saying that Turkey had a marvelous year of manufacturing last year, Yilmaz said: "On the back of a stronger, synchronized global growth conjuncture, six different industries broke export records.

"GDP growth itself went into books with 11.1 percent in the third quarter last year," he said.

"All these achievements were made possible by the extraordinary work of banking sector."

Turkey's economy expanded 5.3 percent in the first quarter and 5.4 percent in the second quarter of 2017. In the third quarter, Turkey’s economy became the fastest-growing among G20 countries, showing double-digit (11.1 percent) growth performance.

"The Credit Guarantee Fund [CGF] provided necessary means for a widespread group of manufacturers while the 'Employment Mobilization' scheme provided necessary jobs for the household," Yilmaz said, noting that over 1.3 million citizens were accommodated with a new job in the first 10 months of 2017.

According to the country's statistical authority, TurkStat, the unemployment rate in Turkey dropped to 10.3 percent in October last year, down 1.5 point from the same month in the previous year.

"Employment support household incomes which keep repaying their loans," Yilmaz said.

"More consumption allows private sector to pay back their debt as well keeping non-performing loan related ratios at desirable levels.

"All these growth supporting government initiatives were brought into life through the strong balance sheet of the banking sector," he said, adding:

"Asset quality assures that Turkish banks will continue focusing on efficiency and provide necessary impetus for Turkish economy to keep her over 5 percent growth trajectory."

KapitalFX analyst Enver Erkan also told Anadolu Agency the returns from the CGF and unused funds had supported the net profitability of banks.

In March 2017, the government introduced a new framework for CGF, which aims to help small and medium-sized enterprises obtain credit via banks by providing the Treasury with guarantees for losses from possible non-performing loans.

"Both headline and core capital adequacy ratios surged, thanks to increasing asset quality of the sector," Erkan said.

"The continuation of credit guarantee fund in 2018 would support credit growth and have an effect on non-performing loans to decline, which was lower than the previous year.

"We expect a positive year for banking in terms of growth, profit margins, asset quality and productivity in 2018," Erkan added.