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Turkey Table of Contents


Banking and Finance

The government, banks, and industry form a complex system through which legislation and government policies direct credit flows. Most state-owned banks were established to finance particular industries, whereas private banks generally have intimate connections with large industrial groups. The Central Bank of Turkey often provides credit to other banks at negative real interest rates. Banks, in turn, funnel credit to industries or groups they serve. The amounts available to particular sectors of the economy thus depend largely on the resources available to the institutions for that sector, rather than on market assessments.

The Central Bank set up a system of quarterly reporting in the mid-1980s, enabling timely warning of banks in difficulties. This reform was a start toward making banking more transparent, but it is still difficult to assess the condition of the banks. Strong political pressures to keep weak industries and groups afloat during the adjustment period make it likely that several years will pass before standard accounting rules can be systematically applied. Legislation introduced in 1993 sought to bring the Turkish banking sector into line with European standards on capital adequacy and other prudential ratios. However, in December 1993, the Constitutional Court blocked this legislation because the executive had enacted it without approval of the legislature. No further action had occurred as of early 1995.

Despite some setbacks, the government's new policies have effected rapid changes in the financial sector. The banking system in early 1995 consisted of the Central Bank and fifty-eight banks, including twenty-one foreign banks, divided between Ankara, where most state-owned banks are located, and Istanbul, the center for most privately owned banks. Turkey also had three state investment and development banks. The Development Bank is funded from the Treasury and invests in the private sector. The Export Credit Bank of Turkey (Türkiye Ihracat Kredi Bankasi) provides export finance. The Municipalities Bank (Iller Bankasi) supports local institutions. In 1995 nine merchant banks also operated in Turkey, six domestically owned and three foreign owned.

The Central Bank, founded in the early 1930s, has the usual central bank responsibilities, such as issuing banknotes, protecting the currency, and regulating the banking system and credit. The Central Bank also finances the government's budget deficits and makes loans to public and private banks. Starting in 1983, however, the Central Bank began to reduce lending and stepped up its supervisory functions.

Six of Turkey's commercial banks are in the public sector, and twenty-one are partly or wholly foreign owned. Of the banking sector's assets, 46 percent are concentrated in four banks: the oldest and largest public bank, the Agricultural Bank of the Republic of Turkey (Türkiye Cumhuriyet Ziraat Bankasi--TCZB); the Real Estate Bank (Türkiye Emlâk Bankasi As); and two private banks, Isbank and Akbank TAS. The TCZB has many branches in rural areas, a strong deposit base, and favored access to state credits, which it uses partly for the agricultural commodity price-support program. After 1983 the TCZB was forced to take over other banks that had failed, a move that reduced earnings.

Much as in Germany and Japan, the major private banks are closely linked to industrial groups. Yapi ve Kredi Bankasi, Pamukbank, and Interbank are owned by the Cukurova Group conglomerate. Akbank, reputed to be the most profitable private bank in Turkey, is owned by the Sabançi Group. Partially publicly traded Kocbank is owned by the Koç Holding Company. Tütünbank is owned by the Yasar Holding Corporation.

Before 1980 there were only four foreign banks in Turkey, but their numbers grew rapidly during the 1980s as the government liberalized conditions. Several joint ventures were created in the 1980s, as well as two Islamic banks specializing in trade finance.

Private banks remain the most vulnerable sector of the banking system because the public banks enjoy de facto state guarantees. During the 1980s, most private banks engaged in trade financing or in sales of state bonds because investment activity was depressed. The largest private banks maintained their ties to Turkey's major corporations despite a 1983 banking law enacted to discourage such links. Although a few private banks were able to eliminate nonperforming loans, many remained vulnerable to their customers' difficulties. By 1986 private-bank balance sheets began to improve, as several years of high-interest earnings made it possible for banks to write off bad loans.

Although the government, public enterprises, and private undertakings increased their use of stocks and bonds after 1970, capital markets remained underdeveloped in the 1970s. After the passing of the Capital Markets Law in 1982, a Capital Markets Board was established to issue regulations for institutions marketing bonds and other financial instruments. Most Turkish corporations were closely held and tended to finance expansion through their own funds from their small circles of stockholders. But in the 1980s, companies were allowed to issue profit-and-loss-sharing certificates with liability limited to the face value of the certificate. The Özal administration also took steps to revive Istanbul's stock market, which had closed down in the late 1970s. The Istanbul Stock Exchange (ISE) reopened in December 1985. With the rise of "emerging market" funds, trading on the ISE expanded rapidly in the early 1990s; indeed, it was the best performing of any market in 1993. Foreign investment accounted for 25 percent of the daily trading volume. In early 1994, however, the stock market crashed in the wake of the currency and balance of payments crisis. Plans for privatization of SEEs were expected to revive the stock market, if foreign investment and confidence in the government's attempts to stabilize the macroeconomic situation increased.

Government securities are quite liquid in secondary markets; this has been true especially since the Treasury began issuing T-bills in 1986 and an interbank market was established in 1987. Government T-bill issues jumped in the early 1990s as the budget deficit exploded. In 1986 the public snapped up revenue-sharing certificates used to finance the Keban hydroelectric project on the Euphrates; the Oymapinar Dam, also on the Euphrates south of Malatya; and a second bridge across the Bosporus. Such certificates were popular, in part because they conformed to Islamic strictures prohibiting interest. Low returns discouraged the government from using such certificates in the 1990s.

Transportation and Telecommunications

Under the Ottomans, foreign companies constructed the portion of the Berlin-to-Baghdad railroad that crossed Turkey, as well as a few other lines used mostly for mining development and the export of agricultural products. Atatürk and the nationalists took an active interest in the development of the railroad system for strategic reasons, setting up the Turkish Republic State Railways (Türkiye Cumhuriyeti Devlet Demiryollari Isletmesi Genel Müdürlügü--TCDD) in 1920. The nationalists set two priorities for railroad development: extending lines to major areas, such as eastern Anatolia and the new capital at Ankara, and buying out foreign railroad interests. The TCDD invested large sums during its first two decades, bringing all railroads under state control by 1948 and increasing track lengths from 4,018 kilometers in 1923 to 7,324 kilometers in 1950. By 1950 the rail system linked the major areas and accounted for about three-quarters of surface freight traffic.

After 1950 the railroads received only small investments and insufficient maintenance because of increasing emphasis on road transport. By the 1970s, the tracks and rolling stock were in poor condition and the TCDD was running chronic deficits, partly because of its low rate structure. In the 1970s, as mining expanded to support the metalworking and fuel industries, the railroads received additional funds to expand and upgrade service.

Between 1985 and 1992, the rail network grew modestly, from 8,193 kilometers of track to 8,430 kilometers. Almost all rail was single-tracked and nonelectrified. Although rail lines linked most important cities, there were few cross connections between lines, and routes were often circuitous. Passengers preferred other means of transport because the railroads were slow and unsafe; in 1982 there were 210 train collisions and 737 derailments. As a result of increased use of trucks, the railroads carried only one-quarter of surface freight, mostly long-haul bulk commodities.

After World War II, transportation development concentrated on the road system. As a result, by early 1995 Turkey had nearly 59,770 kilometers of all-weather highways, of which about 27,000 kilometers were paved. There were also some 308,000 kilometers of gravel and earth roads in rural areas. The government planned to build 3,000 additional kilometers by the year 2000 and to upgrade existing roads.

The Özal administration in the early 1980s began a major project that was expected to result in highways that would traverse the country, making it possible for Turkey to handle increased levels of freight between Europe and the Middle East. This project, along with the second bridge across the Bosporus, would form a 3,600-kilometer link in a 10,000-kilometer trans-European highway going from Gdansk on the Baltic Sea to cities on the Caspian Sea and the Persian Gulf.

Several road and highway improvements were underway in the mid-1990s. The four-lane highway linking Ankara, Istanbul, and Edirne is complete except for a thirty-kilometer stretch under construction west of Bolu (see fig. 11). Another four-lane highway in the southeast, designed to link Gaziantep with Mersin via Adana, lacks about eighty kilometers west of Gaziantep. Another offshoot of this highway that would connect with Iskenderun via Dörtyol is under construction. Other highways in the planning stage include improved links between Iskenderun and Antalya, Ankara and Adana, and Istanbul and Izmir. Additional highways are needed because traffic is extremely dense around major cities in western Anatolia, creating frequent traffic jams and contributing to a high accident rate.

Truck transport of surface freight increased from about 25 percent of the total of such freight in 1950 to more than 75 percent by the mid-1980s. According to one source, in 1984 trucks carried about 40 percent of exports by tonnage. As the oil boom hit the Persian Gulf states and imports clogged their ports during the mid-1970s, heavy truck traffic passed through Turkey. By 1985, however, transit traffic had fallen off somewhat as a result of the fall in demand from oil-exporting countries and a cutback on purchases by Iran and Iraq. The end of the Iran-Iraq War modestly helped revive transit traffic, which was disrupted again by the 1990 Iraqi invasion of Kuwait and the resulting UN embargo. In the mid-1990s, goods moved by truck accounted for 27 percent of total export tonnage.

Shipping is much less important than land transport, but capacity expanded rapidly in the early 1990s. The Özal administration encouraged the growth of Turkey's merchant marine by granting tax rebates to companies registering their ships under the Turkish flag. As a result, the fleet grew from about 1.7 million gross registered tons (GRT) in 1975 to about 2.5 million GRT in 1983. In 1990 the merchant marine's 2,996 cargo ships had a combined capacity of about 3.8 million GRT. A large number of these ships were owned by the Maritime Bank (Denizcilik Bankasi) and Deniz Nakliyati, a large private company. In the 1980s and early 1990s, private cargo lines expanded rapidly. Aside from the ferry across Lake Van, internal shipping is insignificant because few of Turkey's rivers are navigable.

Five ports handle the bulk of the country's sea freight. Istanbul is the most important port, followed by Mersin, Izmir, Iskenderun, and Kocaeli. There are also many small ports along the country's extensive coastline; coastal shipping is substantial, particularly of such bulk commodities as coal and iron ore. Cargo handling is slow and storage limited, however. The main oil terminals near Iskenderun handle both domestic and Iraqi crude. In 1992 ships brought 60 million tons of cargo to Turkey; 26 million tons were exported by sea.

Turkey has 105 usable airports, sixty-nine of which have paved runways. Turkish Airlines (Türk Hava Yollari--THY), plagued by a poor safety record in the 1970s, fought its way back to profitability during the 1980s, although heavy capital expenditures in the 1990s put it back in the red. By 1995 it was a prime candidate for partial privatization, which was expected to net the government US$300 million. By 1985 Turkish Airlines was serving thirty-six international and sixteen domestic destinations with a fleet that had been recently augmented by the purchase of several Airbus Industrie A-310 passenger aircraft. Much of the company's international business involves serving the many Turks who work in Europe and the Middle East. Domestic flights are popular because surface travel between major cities is time consuming; THY's domestic services probably will be further upgraded. In 1992 the total number of passengers carried to, from, or within Turkey on all airlines landing in Turkey reached about 13.8 million (about 2.8 million domestic and 11 million international); the domestic carrier transported about 2.4 million passengers within Turkey and about 1.7 million international passengers. Private airlines entered the market in the 1980s; Istanbul Airlines and Green Air handle both domestic and foreign routes.

Turkey's archaic telecommunications system, which had long been overloaded, received expanded domestic and international lines in the 1980s and early 1990s. Until the 1980s, more than half of Turkey's villages lacked telephone connections, and customers had to wait years to get telephones installed. In the early 1980s, authorities designed a program to eliminate the waiting list for telephones; make service available to all of the country's settlements; and install countrywide automatic dialing, a new telex system, and a connection with the European telecommunications satellite. The number of telephones increased from about 351,000 in 1966 to an estimated 7.96 million by the end of 1991.

The Turkish Radio-Television Corporation (Türkiye Radyo-Televizyon Kurumu--TRT) has flagship radio stations in Ankara and Istanbul, with subsidiary networks in fifteen other urban centers. Frequency modulation (FM) transmitters are located in ten cities, including Ankara and Istanbul. In addition to Turkish, broadcasts are made in Albanian, Arabic, Azerbaijani, Bulgarian, Chinese, English, French, German, Greek, Hungarian, Persian, Romanian, Serbo-Croatian, and Urdu. Turkish television has two main channels that reach more than forty population centers. The Istanbul area has three additional channels. In early 1995, the Turkish population had some 8.8 million radios and some 10.53 million television sets.

Data as of January 1995

Country Listing

Turkey Table of Contents