Eyes on Turkey’s SMEs

ISTANBUL – HSBC expects loans to small and medium-sized firms at least to double next year in Turkey, as the financial group taps into a fast-growing market dominated by a handful of banks, the deputy of HSBC’s Turkish operation said. But amid stiff competition in the banking sector, HSBC Turkey assistant general manager Huseyin Ozkaya does not expect any banks to raise their prices next year and sees thinning profitability hastening consolidation in the sector. Ozkaya said HSBC was a newcomer in the SME market, where the main players are Akbank – part-owned by Citigroup – Garanti, Yapi Kredi, Finansbank and Fortis. «SMEs is the most exciting part and that’s where the growth is because as you know personal banking in the last four years has grown significantly… and we see that this year it has come to a very stable level,» Ozkaya told Reuters. This year HSBC has increased its Turkish SME loan book three-fold and next year expects to double or triple it again. «Our official budget is to double it but I’m sure it’s going to be more,» he said, adding that SME lending only really took off in Turkey in 2004. As a result, he said it was too early to judge non-performing loan rates, but he expected it to be around 2 to 2.5 percent, worse than other corporate loans but stronger than personal lending. Turkey had a deep financial crisis in 2001, which wiped out a dozen banks and prompted a clean-up of the sector. Since then banks have also had to diversify, rather than relying on easy returns from high-yielding Treasury bonds. Benchmark borrowing rates now stand at 17.50 percent – after a combined 425 basis point rise in response to rising inflation and a sliding lira currency in May and June. Central Bank Governor Durmus Yilmaz said last week rates could go higher in response to any government overspending or tension over presidential and general elections in May and November next year. But Ozkaya said competition was so fierce in the sector – where some banks are seeing negative spreads between their lending and borrowing – that prices would not increase next year. «Because of increasing competition I do not see prices increasing in any product in banking,» he said, adding that could change once consolidation in the sector started. «That’s why I believe consolidation has to happen because of the current spreads, there will be some negative spreads even in some of the products,» he said. While consolidation is expected in the fast-growing sector, foreigners continue to buy into the market, with recent purchases from Dexia and most recently Citigroup, which bought a 20 percent stake in Akbank, with a first refusal option to buy more. Still likely to be sold are Halkbank, due to be privatized soon, and Oyakbank, which has said it is looking at partnership or sale opportunities. Turkey’s banking index, stands 4.5 percent weaker than it ended last year, compared with the main index which is 0.4 percent lower. But last year, amid a flurry of mergers and acquisitions, the banking index rose 95 percent, outperforming the main index’s 59 percent rise.

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