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Monday, 23 October 2017

Seeds of growth in foreign soil

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Turkish banks were the envy of many of their foreign counterparts when the financial crisis squeezed hardest. Their more conservative approach to the business than many banks elsewhere was reflected in their balance sheets. It is early days, but now the banks are utilising their strength to expand beyond borders, and ambitions are global.

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Many European banks are under increasing pressure from their governments to focus their attentions at home, but a number of Turkish banks are looking to take the domestic success they have enjoyed domestically and apply it in new markets.

Take Isbank. Halfway through 2011, Isbank had the second-largest banking network in Turkey, with 1,153 domestic branches, plus 15 foreign branches, two representative offices and a bank subsidiary in Germany. It also has interests in non-banking corporates, predominantly in industrial and telecoms sectors.

Isbank claims to have been the first Turkish bank with a foreign presence, its branches in Alexandria and Hamburg opening in 1932. It is now active in 12 different countries, with a presence in the UK, Bahrain, Iraq and Northern Cyprus, as well as a subsidiaries in Germany and Russia, and representative offices in Shanghai and Cairo.

Its foreign business interests are driven by Turkish clients active abroad, as well as local players in those countries. International trade finance and international payments are cited as particularly important activities for the bank.

“Apart from local corporates, there are large numbers of Turkish corporates operating in our target countries. We are seeking not only to serve local population through regular banking activities, but also to provide all kind of banking services required by Turkish entrepreneurs,” Isbank stated.

“Isbank’s presence would encourage Turkish companies to invest more in these countries, having a positive effect on the economy and the financial sector of the country involved and enhancing co-operation between two countries in terms of trade, construction, project finance and many other areas,” the bank added.

Garanti, too, has aspirations to grow as an international player. It boasts operations in Russia, the Netherlands and Romania through licensed banks, with representative offices in Germany, the UK and China and overseas branches in Luxembourg, Malta and Northern Cyprus.

Like Isbank, its transition to international banking was smoothed by the presence of Turkish business interests abroad. Its Russian subsidiary, Garanti Bank Moscow (GBM), began operations in 1996 and holds a full-scale banking licence, though it describes its core businesses as corporate and commercial banking. GBM serves both Turkish companies active in Russia and Russian clients, but the latter has come to dominate the business, with 83% of its clientèle Russian resident companies.

Its first representative office opened in London in 1985, with its first foreign subsidiary coming five years later when Garanti Bank International NV (GBI) was established in the Netherlands. GBI now has operations in Germany, Turkey, Switzerland and Ukraine via its branches and representative offices, offering trade finance, private banking, structured finance, and corporate and commercial banking. Each country is home to a different flavour of the bank with the balance of business reflecting the client mix it serves.

Romania, then the world

But it is the Romanian business that causes the most excitement among Garanti executives. In both the Netherlands and Russia, Garanti offers corporate and commercial banking services, but its Romanian subsidiary, which started life in 1998 before gaining a full banking licence in 2010, operates as a universal bank. It serves customer segments via a number of businesses: Garanti Bank SA, Garanti Leasing, Garanti Mortgage and Garanti Consumer Finance.

“With 77 branches and 98% geographic coverage, we offer advanced and comprehensive banking services with the aim to become one of the top 10 banks in Romania,” said Ali Fuat Erbil, executive vice-president of corporate banking, financial institutions and cash management at Garanti.

The two are not alone. Denizbank Financial Services Group comprises six consolidated financial-related subsidiaries, with two foreign subsidiaries in Austria and Russia. Akbank supplements a domestic distribution network comprising 912 branches with smaller international operations through its subsidiaries in the Netherlands, Germany and Dubai.

However, it is important not to overstate the case, and Turkish banks are still in the early stages of realising their international ambitions. “I do not find them that expansionary outside of Turkey,” said Marina Vlasenko, emerging markets credit lead analyst at Commerzbank.

“Major parts of the operations are concentrated inside of the country, while subsidiaries abroad are not many and probably are often used just for better access to exchanges or more favourable tax regimes. Several large Turkish banks have foreign shareholders which have international exposure themselves and therefore would probably not support too aggressive an expansion strategy. Competition should also be quite tough as Turkish banks have a lack of long-term resources.”

“We [Isbank] plan to take new initiatives in Iraq, Georgia, Kosovo, Pakistan and Azerbaijan in the near future”

Yet the Turkish banks are clearly thinking about international growth. Today the preoccupation is with establishing themselves as regional players, but mighty oaks from little acorns grow: perhaps one day they could become global banking forces.

“We seek to be a regional bank first and then to become a global player in terms of our growth strategy, without compromising sustainable profitability,” said Isbank. “In this context, we plan to take new initiatives in Iraq, Georgia, Kosovo, Pakistan and Azerbaijan in the near future.” The bank also plans to expand its presence in Egypt, building on the representative office it already has there.

“Currently we are focusing on the expansion of our Romanian business,” added Garanti’s Erbil. “While Romania is our priority, we continue to monitor the developments in other countries in the region, mainly in Eastern Europe and the Middle East for any opportunities that may arise for the long term.”

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