The successful conclusion of talks between the European Union and Turkey for the beginning of accession negotiations has brought relief and satisfaction to banks in Greece. Local banks’ interest in expanding to the very promising Turkish market is great and the positive developments on October 3 have put an end to a long uncertainty, opening the way for some bold moves. The Turkish market plays a key role in the plans of the major domestic banks, which envisage a notable regional presence in the broader geographical area, starting with Russia and Poland, and including all neighboring Balkan states, Turkey, and all the way to Egypt. The strategic choice by the National Bank of Greece (NBG) to expand into Turkey is well-known, while Eurobank and NovaBank have already made their first moves. Notably, NBG has for some years had an office in Turkey, and in the last few months the bank’s heads are on the alert for opportunities in the neighboring country. EFG Eurobank’s move is of low reach, considered exploratory and only refers to the acquisition of a stockbrokerage company in Istanbul. Nevertheless, it is certain that EFG’s subsidiary across the Aegean is the «eyes and ears» of the group in Turkey, allowing it to make fresh moves in the future. The biggest move made by a Greek bank in Turkey is by NovaBank: It has proceeded with the purchase of Sitebank, which, after its radical reorganization, has been renamed BankEuropa. Maybe NovaBank’s ownership by a Portuguese bank (BCP) has helped it overcome the problems a Greek bank might have faced. Still, in a recent interview with Kathimerini, Ersin Ozince, chairman of the Turkish Bankers’ Association and CEO of Turkiye Is Bankasi, had appeared especially optimistic about the improvement of economic relations between the two countries. Among other things, Ozince had stressed that «strengthening commercial relations, let alone Greek investments in Turkey or vice versa, will greatly contribute to improving our ties.» Bank market structure Interest in the Turkish market comes not only from Greece; it appears particularly strong among foreign investors, as the massive size of the market – with a population of about 70 million people and its great growth prospects – is very attractive. Especially in the case of the banking sector, growth prospects appear impressive, with borrowing corresponding to just 21 percent of gross domestic product (GDP) against 37 percent in other emerging markets. According to an analysis by Emporiki Bank at end-2004, the number of bank branches in Turkey came to 6,106, of which 6,088 were commercial bank branches, while the number of private bank branches rose to 3,729 in 2004. The total assets of the sector last year came to $229 billion (190 billion euros), while the proportion of banks’ assets to GDP (78 percent) reflects the low degree of penetration by the banking system and the margins for further growth. Deposits amount to 62 percent of the system’s funding sources and to 47 percent of GDP. The four biggest private banks (Isbank, Akbank, Garanti Bankasi and Yapi Kredi) represent 41 percent of the sector’s assets (at end-2004), while, along with state commercial banks Ziraat Bankasi, Halk Bank and the partly state Vakifbank, concentrate 76 percent of assets. The next group, of medium-sized banks (Kocbank, Finansbank, Disbank, Denizbank, Oyakbank, HSBC, TEB and Sekerbank), accounts for only 17 percent of assets. In Emporiki Bank’s analysis, it stressed that interest by foreign banks for a presence in Turkey has recently been on the rise. BNP-Paribas decided to acquire 50 percent of TEB, while Rabobank has opened negotiations for the acquisition of a majority stake at Sekerbank. Koc Financial Services (owned by Unicredito and Koc Holding) announced that negotiations are under way for the acquisition of a majority stake of Yapi Kredi Bankasi (the process is expected to be completed by the end of the year), while Belgium’s Fortis has expressed the intention of purchasing 100 percent of Disbank. Retail banking In 2004 the balance of bank loans to private customers increased 106.9 percent from 2003; the increase rate of loans to enterprises was 42 percent. The portion of loans to private customers to all loans to the private sector rose to 28 percent in 2004 from 21 percent in 2003. In contrast, loans to enterprises as a percentage of all loans fell from 79 percent in 2003 to 72 percent last year. The biggest market share in 2004, Emporiki report noted, belonged to private banks (72 percent), with the state banks’ share at 23 percent. The mortgage loan market is still a far cry from full maturity, marked by little long-term lending. A new regulatory framework was recently created providing for tax incentives to borrowers which banks could use to promote their products. The mortgage market is expected to soon become the most rapidly expanding retail banking activity in Turkey.