Download Global Financial Crisis and Regional M.İbrahim Turhan Deputy Governor

Global Financial Crisis and Regional
Responses to Prevent and Control the Impacts
M.İbrahim Turhan
Deputy Governor
September 22, 2011
New York
Background of the Crisis
An extraordinary crisis;


Occurred after a long period of
•
low interest rates and abundant liquidity,
•
high economic growth and low levels of inflation,
•
imbalances in savings and investment hence in the current account,
•
deregulated innovations in financial markets
In terms of its source, dimensions and impacts
•
started in advanced countries,
•
had global effects,
•
changed long-standing perceptions in favor of emerging markets,
•
led to decoupling between emerging markets and advanced economies
2
Decoupling in Central Bank reactions…
EM Central Banks will be more concerned about inflation whereas AE
Central Banks may be more concerned about growth.


Many EM policy makers already employed measures such as raising policy rates
and reserve requirements to tame robust domestic demand.
In EMs and developing economies,




Tighter monetary policy
Exchange rate appreciation
Higher inflation targets
AE central banks left in between hiking rates to tame inflation but risk hurting the
fragile growth at its early stages.
THE RISE OF EMERGING MARKETS
EMs are outperforming AEs
Share in World Total GDP
(Percent, PPP based)
GDP Annual Change
(Percent, YoY)
10
70
Advanced Economies
8
65
6
60
4
55
2
50
0
45
-2
40
-4
Advanced Economies
Emerging and Developing Economies
-6
2006
Source: IMF WEO.
2007
2008
2009
2010
35
30
Source: IMF WEO.
Emerging and Developing Economies
EMs are outperforming AEs
Savings and Investment
Government Debt
(Percent, Ratio to GDP, Average of 2000-2011)
(Percent, Ratio to GDP)
120
35
Advanced economies
Advanced economies
Emerging and developing economies
30
Emerging and developing economies
100
25
80
20
60
15
40
10
20
5
0
0
Investment
Source: IMF WEO.
Gross national savings
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: IMF WEO.
RESILIENCE OF THE TURKISH ECONOMY
CDS of Turkey versus
900
Turkey
Hungary
800
700
600
500
400
300
200
100
0
Source: Bloomberg, CBRT
Bulgaria
Romania
Crotia
Strength of Turkey

Risks are limited both in financial and public sector due to appealing leverage
structure;


•
Low debt levels of households,
•
Low and decreasing government debt due to fiscal discipline,
•
Strengthening FX positions of public and private sectors,
•
Hedged private sector debt under control,
•
Limited FX open positions and high capital adequacy ratios in banking sector,
•
Extending maturities of borrowing
Fundamental Advantages
•
Young Population
•
Flexible labor market and hence production structure
New Policy Mix
•
Policy rate
•
Reserve Requirement
•
Wider interest rate corridor
9
Household Debt Remains Low
Ratio of FX-Indexed Consumer Loans
to Total Consumer Loans (percent)
Ratio of Household Liabilities to GDP
(percent, Average of 2005-2010)
16
60
50
12
40
8.6
8
30
6.4
4.8
4.7
3.6
4
3.9
20
3.3
1.6
1.5
2010
Jan
2011
0
2003
2004
Source: CBRT
2005
2006
2007
2008
2009
10
0
Turkey
Eastern Europe
EU
Source: European Central Bank, CBRT
10
Public Debt is Low
Public Debt Stock
(Ratio to GDP)
120
120
110
110
80
73,7
Developed G-20 Countries
90
80
80
Turkey*
70
60
60
50
50
40
40
59,2
60
52,3
50
46,1
40
45,5
39,4
39,5
2008
90
70
67,4
100
2007
100
70
41,6
30
Developing G-20 Countries
30
30
2008
2010
*Medium-Term Program (2011 -2013) Targets
Source: IMF WEO October 2010, Treasury, BRSA, CBRT
2012
2014
2010
2006
2009
2004
2006
2002
2005
2000
2004
20
2003
20
2002
20
Source: Treasury, CBRT
11
Private Sector Debt is Under Control
Trading Volume of Turkish Derivatives
Exchange Market Currency Contracts
(billion TL)
Foreign Exchange Position of Non-financial Sector
25,000
20,000
15,000
10,000
5,000
0
2005
Source: Turkdex , CBRT
2006
2007
2008
2009
Source: Bloomberg, CBRT
12
100 150
6
100
4
50
2
0
0
0
Source: Eurostat, CBRT
France
Lithuania
Latvia
Bulgaria
Estonia
Hungary
Italy
Poland
Romania
Turkey
300
Greece
200
Belgium
150 250
Turkey
Spain
200
Slovakia
400
Germany
16
Denmark
450
Austria
18
Portugal
Loan to Deposit Ratio as of 2009
(percent)
Loan to GDP Ratio, % (2009)
Malta
300 500
Finland
250
Belgium
Luxem
Turkey
Czech
Ro man ia
Greece
Slo vakia
lan d
PoTurkey
United.
Czech Rep
Poland
ia
Lith uan
Germa
Bulgaria
Spain
Hungary
Bulgari
Greece
Holland
land
Fin
ia
Slo ven
Romani
Belgium
Malta
n ia
Esto
Hungar
Latvia
Portuga
Italy
Austria
ce
Fran
France
Germany
Slovaki
Austria
Finland
Sweden
Italy
al
Po rtug
Sloveni
ain
Sp
lland
Ho Ireland
Estonia
Denmark
Lithuani
Ireland
ited…
UnLatvia
Swede
Malta
urg
Luxembo
Denmar
Strength of Banking Sector
Non-Performing Loans Ratio as of 2009
(percent)
14
350
12
10
Turkey
8
50
Source: Eurostat, CBRT
13
Source: Eurostat, CBRT
0
Capital Adequacy Ratio as of 2009
(percent)
30
Turkey
25
15
10
Latv ia
Lithuania
Es tonia
Ireland
Denmark
Belgium
Germany
Franc e
Holland
United
Greec e
Slov enia
Aus tria
Sweden
Italy
Portugal
Finland
Lux embo
Spain
Romania
Slov ak ia
Poland
Bulgaria
Cz ec h
Hungary
Malta
Turk ey
Turkey
Malta
Bulgaria
Belgium
Luxembourg
Holland
Romania
Denmark
Hungary
Finland
United Kingdom
Latvia
Czech Rep.
Germany
Ireland
Lithuania
Poland
Austria
Sweden
Slovakia
Spain
France
Estonia
Greece
Italy
Slovenia
Portugal
Strength of the Banking System
Return on Assets as of 2009
(percent)
3
Turkey
2
1
20
0
-1
-2
-3
5
-4
-5
Source: Eurostat, CBRT
14
Demograpichs: Young Population
Source: UN, CBRT
15
Economic Policies and Resilience
Economic policies secured the resilience of the Turkish economy and
Turkey has become an outperformer
 Monetary Policy
• The CBRT introduced a policy mix; a comprehensive set of all available monetary policy tools in
addition to the conventional ones in the context of liquidity management framework.
o
o
o
interest rate corridor,
collateral policy,
reserve requirements
• Macroprudential measures to restrict domestic credit and domestic demand while keeping the short
term interest rate differentials as low as possible.
• The monetary policy stance in this framework is determined not only by policy rates, but also other
the policy instruments.
16
Economic Policies and Resilience
Economic policies secured the resilience of the Turkish economy and
Turkey has become an outperformer
 Fiscal Policy
• Prudent fiscal policy and a credible medium term program strengthened the predictability and hence
decreased the risks
• Decreasing debt ratio eliminated fiscal dominance.
 Regulation Policy
• Restrictions on loan to value ratio, credit card borrowing, and consumer lending.
• Households are not allowed to borrow in FX.
• Unlimited responsibility for bank owners and executive directors.
17
The Policy Mix
CBRT Policy Rate
25
TL Reserve Requirement Ratios
O/N Lending - Borrowing Interest Rate Corridor
1- week Repo Rate
20
Adoption of 1-week repo rate as
the policy rate
15
10
5
0
Source: CBRT.
Source: CBRT.
18
TURKEY AND THE BALKAN COUNTRIES
The Balkans

Leading investor nations in the Balkans have economical problems.
•
Austria: Banking sector exposure to Eastern Europe countries because of
excessive euro denominated credit lending to households and corporates
which do not have FX income.

•
Italy: High debt to GDP ratio, structural problems
•
Greece: High debt to GDP ratio, structural problems, political instability
Ongoing problems of Greek and Italian economies regarding the
sustainability of their sovereign debt have potential to threat the
Euro zone.
Greek and Italian economies have own problems
CDS Spreads
5047
3000
2500
Greece
2000
1500
1000
Italy
500
Turkey
0
Source: Bloomberg, CBRT
21
The Balkans and Turkey

Common





History
Culture
Economy
Future
Integration to European Union
* Official candidate states:
Croatia
FYR Macedonia
Montenegro
Turkey
* Potential candidate states:
Albania
Bosnia and Herzegovina
Serbia
Turkey versus
Growth
(2010, Percent, GDP annual change)
10
8
6
4
2
0
-2
-4
-6
Source: IMF WEO, CBRT
23
Turkey versus
Annual Average Employment Growth*
(2007-2010)
%
*Difference of natural logarithms
Source: WEO, Turkstat, CBRT
24
Turkey versus
Unemployment Change During 2009-2010
(Percent of Total Labor Force)
4
3
2
1
0
-1
-2
-3
Turkey
EU-15
Italy
Romania
Portugal
Serbia
Spain
Greece
Bosnia Her.
Croatia
Bulgaria
Source: IMF WEO, CBRT
25
Turkey versus
Budget Deficits
(percent of GDP)
18
2009
2010
16
14
12
10
8
6
4
2
0
Source: Treasury, IMF, CBRT
26
Summary
Turkey and the Balkan countries can benefit from
cooperating with each other.

Turkey has experiences of structural reform programmes, building
stability, ensuring economic development and EU membership process
to guide the Balkan countries.

The Balkan countries and Turkey have always been an integrated economic
area.

Commonalities between our nations offer a huge opportunity beneficial
to all parties.
Global Financial Crisis and Regional
Responses to Prevent and Control the Impacts
M.İbrahim Turhan
Deputy Governor
September 22, 2011
New York