Download II. DOMESTIC ECONOMIC OUTLOOK

TÜRKİYE CUMHURİYET MERKEZ BANKASI
II. DOMESTIC ECONOMIC OUTLOOK
The divergence between growth dynamics of advanced and emerging economies accelerates capital
inflows to countries like Turkey, with relatively stronger economic fundamentals. While domestic demanddriven growth continues, unemployment rates decline. These developments give way to concerns of
overheating in Turkey, as in other emerging economies. However, the persisting low level of capacity
utilization and moderate levels of services inflation suggest that there is no overheating in the economy.
Nevertheless, indebtedness that surged on the back of accelerated capital inflows and credit expansion, the
widening current account deficit resulting from the significant divergence between internal and external
demand as well as the financing of this deficit by rather short-term funds feed the risks related to financial
stability, and may hamper price stability over the medium-term. In order to ward off concerns over financial
stability the Central Bank of Turkey has started to implement a new policy mix comprised of low policy rate,
wide interest corridor and high required reserves in order to curb short-term capital inflows and restrain the
surge in credits and the current account deficit. The effects of our bank’s policies on short-term capital
movements, credit growth and domestic demand have started to be observed in the second quarter of the
year. However, both elevated levels of energy and other commodity prices and weaker external demand
outlook postpone the improvement in the current account balance to the last quarter. Meanwhile, the
budget balance continued to improve on the back of increased tax revenues owing to economic revival and
limited public expenditures. The Central Bank will continue to monitor the impacts of the current policy mix
on credit growth and the current account balance closely and take additional measures if needed.
Economic growth driven by domestic demand continues. GDP increased by 5.2 percent
and 9.2 percent year-on-year, in the third and fourth quarter of 2010, respectively (Chart II.1). The
slowdown observed in the third quarter was temporary and there was a strong increase in economic
activity in the last quarter. Thus, the national income, which had contracted by 4.8 percent in 2009,
grew by 8.9 percent in 2010. The growth of GDP was mainly attributable to final domestic demand. In
2010, while the total share of final domestic demand in GDP growth was 10.9 points, with a
breakdown of 4.7 points from private consumption expenditures, 6 points from investment
expenditures and 0.2 points from public consumption, the shares of net exports and stock changes
were –4.4 points and 2.5 points, respectively. Industrial production and capacity utilization data
pertaining to the first quarter of 2011 reveal that the economy continues to grow. In the first quarter
of 2011, industrial production and the capacity utilization rate increased by 14.2 points and 5.7 points,
respectively, compared to the same period of 2010 (Chart II.2).
Financial Stability Report – May 2011
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
Chart II.1. GDP and Its Components (%, Annual
Contribution)
Chart II.2. Industrial Production and Capacity
Utilization
20
20
15
10
10
5
0
0
-5
-10
-10
-15
-20
-20
-30
Final Domestic Demand
Stocks
Net Exports
GDP
Source: TURKSTAT
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.08
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.08
12.07
09.07
06.07
03.07
-25
Industrial Production Index (%, yoy)
Capacity Utilization Rate (year to year difference)
Source: TURKSTAT, CBRT
The GDP is still below its potential and the capacity utilization rate is yet to reach its
pre-crisis level. Rapid recovery in the economy has led to concerns of overheating in Turkey as well
as in other emerging economies. However, the real GDP is yet to reach its potential levels due to the
weak external demand (Chart II.3). Moreover, the low level of capacity utilization rates in the
manufacturing industry, with its recent downward trend, indicates that the total demand is not high
enough to put pressure on inflation (Chart II.4).
Chart II.3. GDP and Its Trend
1.3
Chart II.4. Seasonally Adjusted Capacity
Utilization Rate (%)
85
1.2
80
1.1
1.0
75
0.9
0.8
70
0.7
65
0.6
0.5
Real GDP
Post-crisis trend (WEO)
Pre-crisis trend (2002-2007)
Source: TURKSTAT, CBRT, IMF
55
03.07
06.07
09.07
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
05.11
06.02
12.02
06.03
12.03
06.04
12.04
06.05
12.05
06.06
12.06
06.07
12.07
06.08
12.08
06.09
12.09
06.10
12.10
60
Source: TURKSTAT, CBRT
Although unemployment rates are approaching pre-crisis levels, core inflation
indicators continue to remain consistent with medium-term targets. According to seasonally
adjusted figures, unemployment rates, which had increased due to the global turmoil and economic
contraction, started to decline in the first quarter of 2009 and approached pre-crisis levels in the first
quarter of 2011, on the back of strong booms in employment (Chart II.5). Annual CPI growth
remained low. While annual inflation was 4.3 percent in April 2011, core inflation indicators measured
with H and I indices stood at 4.8 percent and 4.4 percent, respectively (Chart II.6). Annual inflation
for H and I indices surged on the back of the rise in core goods prices stemming from the increase in
imports prices and depreciation of the Turkish lira in the first four months of 2011. However, annual
CPI inflation experienced a steep decline owing to the weakening of base effects from the January
2010 tax adjustments on fuels, alcoholic beverages and tobacco as well as the changes in
unprocessed food prices and the favorable course of services prices. Especially the persisting low
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Financial Stability Report – May 2011
TÜRKİYE CUMHURİYET MERKEZ BANKASI
levels of capacity utilization rate and moderate levels of inflation in the services sector signal that
there is no overheating in the economy.
Chart II.5. Seasonally Adjusted Unemployment
Rate (%)
Chart II.6. Inflation (%)
14
16
12
15
10
14
8
13
6
12
4
11
2
10
CPI
H Index
04.11
12.10
08.10
04.10
12.09
08.09
04.09
12.08
08.08
12.07
03.05
06.05
09.05
12.05
03.06
06.06
09.06
12.06
03.07
06.07
09.07
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
02.11
Source: TURKSTAT
04.08
0
9
I Index
Source: TURKSTAT
The current account deficit continues to widen. The foreign trade deficit, which
contracted on the back of the economic slowdown due to the global crisis and the fall in commodity
prices and declined to USD 38.8 billion by the end of 2009, started to gain ground with the economic
revival. Despite the recovery in exports, as a result of the acceleration of demand for imported goods,
the foreign trade deficit reached USD 83.7 billion year-on-year in March 2011 and recovery paces of
internal and external demand diverged further. As a result of these developments, export/import
coverage ratio, which had been 72.5 percent at end-2009, declined to 58.8 percent in annual terms in
March 2011 (Chart II.7). The current account deficit that had declined to 2.3 percent of GDP at end2009 due to the global turmoil and economic contraction started to rise again with the economic
recovery and reached 6.6 percent of GDP by the end of 2010. Increasing further in 2011, the current
account deficit climbed from USD 48.4 billion in 2010 to USD 60.5 billion year-on-year in March 2011
(Chart II.8).
Chart II.8. Current Account Balance
Foreign Trade Balance (Annual, Billion USD)
Exports/Imports (Annual, %) (R.-hand axis)
Source: TURKSTAT
-7
03.11
-70
12.10
-6
09.10
-5
-60
06.10
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.08
12.07
-90
-4
-50
03.10
-80
-40
12.09
-70
-3
09.09
-60
-2
-30
06.09
-50
-1
-20
03.09
-40
-10
12.08
-30
0
09.08
-20
0
06.08
80
76
72
68
64
60
56
52
48
44
40
03.08
0
-10
12.07
Chart II.7. Foreign Trade Balance
Annual, Billion USD
% GDP (R.-hand axis)
Source: TURKSTAT, CBRT
While the share of portfolio investments and other investments in the financing of
the current account deficit increases, that of direct investments decreases. Increased global
liquidity on the back of expansionary monetary policies implemented by advanced economies in the
Financial Stability Report – May 2011
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
aftermath of the global crisis accelerates capital inflows towards emerging economies. Capital inflows
to Turkey also accelerated with the exit from the crisis and reached 6.4 percent of GDP by the end of
2010. This trend in capital flows also prevails in 2011. Net capital inflows, which had been USD 46.9
billion by the end of 2010, reached USD 53.2 billion year-on-year by March 2011. The capital inflows
were composed of USD 23 billion of portfolio investments and USD 21 billion of other investments,
while only USD 9.2 billion were from direct investments (Chart II.9). These figures reveal that shortterm resources gained weight in financing the current account deficit.
Chart II.9. Financing Structure of the Current Account Deficit
Amount of Capital Inflows (Annual, Billion USD)1
Capital Inflows (Annual, % GDP)1
80
70
60
50
40
30
20
10
0
-10
-20
-30
10
8
6
4
2
0
-2
Other Investments
Direct Investments
Portfolio Investments
Capital Inflows
Direct Investments
Other Investments
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.08
12.07
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.08
12.07
-4
Portfolio Investments
Capital Inflows
Source: CBRT
(1) Capital inflows is composed of net direct investments, net portfolio investments and net other investments. Foreign exchange assets of banks and other
sectors are not included in other investments.
The upsurge in credits and current account deficit creates concerns over financial
stability. Credit growth and the current account deficit follow a parallel trend (Chart II.10). Rapid
credit growth is considered to cause widening in the current account deficit by strengthening domestic
demand. Besides, the surge in the share of short-term capital inflows in financing the current account
deficit makes the economy more vulnerable to potential changes in capital flows. Although the credit
growth rate in emerging economies, which are in the initial stages of financial deepening, is expected
to be higher than that of advanced economies; country cases suggest that important banking and
balance of payments crises are related to rapid credit growth. Furthermore, it is observed that there is
both a linear and positive relation between the credit growth rate and credit growth rate volatility
(Chart II.11).3 High credit volatility also increased the size of fluctuations in economic growth and
imposes a risk on financial stability. Therefore, reducing fluctuations in credits will support
sustainability of growth by decreasing procyclicality in credit markets.
3
Please refer to: Special Topic V.1. Limitation of Credit Volatility.
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
Chart II.10. Credit Growth and Current Account
Deficit (%)1
Chart II.11. Credit Volatility and Average Credit
Growth Rate by Countries (2002-2010)1
35
14
Credit Growth Rate Volatility(%)
30
12
10
25
8
20
6
15
4
2
10
03.11
2010
2009
2008
2007
2006
2005
2004
2003
0
Credit Growth / GDP
Current Account Deficit / GDP
5
Average Credit Growth Rate (%)
0
0
Source: BRSA-CBRT
(1) GDP figure for March 2011 is forecast.
10
20
30
40
50
Source: IMF, CBRT Calculations
(1) In order to identify existence of a relation between credit growth rate
and credit growth rate volatility, data (derived from the IMF database)
regarding credits extended to private sector in 41 countries including
Turkey, were used.
In this framework, reserve requirement ratios were increased and differentiated
according to the maturity structure of liabilities in order to curb the credit growth rate
and to reduce the maturity mismatch between banks’ assets and liabilities. Reserve
requirement ratios started to be used as an active policy tool since October 2010. Remuneration of
the Turkish lira required reserves was terminated. Besides, reserve requirement ratios were
differentiated -set higher for shorter maturities- from December so as to strengthen financial stability
by lengthening the maturity structure of liabilities in the banking system (Chart II.12).
Chart II.12. Reserve Requirement Ratios (%)
TL
FX
18
13.0
TL RR Ratio
Demand, Notice, Private Current
Up to 1 Month
Up to 3 Months
Up to 6 Months
Up to 1 Year
1 Year and Longer
Other Liabilities
16
14
12
10
8
FX RR Ratio
12.5
12.0
FX dem. dep., notice deposits, priv.current acc., FX dep., FX part.
Acc.up to one month, up to 3 months, up to 6 months and up to
1 year maturitis and other FX liab. up to 1 year maturity
FX dep. and part. acc. with 1 year and longer maturity and other
liab. longer than 3 year maturity
11.5
Other FX liab. 1-3 year maturity
11.0
6
10.5
4
10.0
2
15.04.11
29.04.11
18.03.11
18.02.11
21.01.11
24.12.10
26.11.10
28.10.10
01.10.10
15.04.11
29.04.11
18.03.11
18.02.11
21.01.11
24.12.10
26.11.10
28.10.10
01.10.10
03.09.10
03.09.10
9.5
0
Source: CBRT
Furthermore, the Central Bank embarked on a policy of low policy rate and wide
interest rate corridor in order to reduce short-term capital inflows. While the Central Bank
decreased policy rates to curb short-term capital inflows, it widened the interest rate corridor and
increased the volatility of short-term interest rates (Chart II.13 and II.14). These decisions aimed to
extend the maturity of short-term capital inflows as well as to prevent the Turkish lira from becoming
detached from economic fundamentals.
Financial Stability Report – May 2011
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
Chart II.13. CBRT Interest Rates (%)
Chart II.14. Overnight Interest Rates
25
10
20
8
6
15
4
2
5
0
10.09.10
24.09.10
08.10.10
22.10.10
05.11.10
19.11.10
03.12.10
17.12.10
31.12.10
14.01.11
28.01.11
11.02.11
25.02.11
11.03.11
25.03.11
08.04.11
22.04.11
06.05.11
20.05.11
10
04.11
01.11
10.10
07.10
04.10
01.10
10.09
07.09
04.09
01.09
10.08
07.08
04.08
01.08
0
ON Borrowing Rate
ON Lending Rate
1 week repo rate
ISE Repo-Reverse Repo
CBRT Borrowing
Primary Dealer Repo
CBRT Policy Rate
ON SWAP
Source: CBRT
Source: CBRT
Initial impacts of the policy mix have started to be observed. Following the measures
taken by the Central Bank, the acceleration in credits growth ceased, loan interest rates saw limited
increases, the average maturity of deposits started to extend4 and the yield curve steepened
(Chart II.15 and II.16). However, credit growth has not declined to reasonable levels for financial
stability in the first quarter of 2011. Nevertheless, credit utilization is expected to slow down in the
period ahead on the back of the lagged effect of monetary tightening.
Chart II.15. Weighted Average Maturity of TL
Deposits and FX Deposit Accounts (Day)
Chart II.16. Savings Deposits Yield Curve (%)
90
10.0
80
9.5
70
9.0
60
8.5
8.0
50
7.5
40
7.0
TL Deposits
04.11
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
30
6.5
Up to 1
month
Up to 3
months
Up to 6
months
Up to 12
months
FX Deposits
25.12.09
Source: CBRT
06.05.11
Source: CBRT
While monetary policy revealed a tight stance; faster than expected recovery of
economic activity, public expenditures under control and the decline in interest expenses
had a positive impact on public finance balance. In 2010, budget revenues increased on the
back of the surge in domestic demand, interest expenses decreased with the fall of interest rates and
primary expenditures rose relatively modestly. As a result, budget performance followed a positive
trend and central government primary surplus, which had been TL 440 million in annual terms by the
end of 2009, increased to TL 8.7 billion at end-2010. Central government budget deficit fell from TL
52.8 billion in 2009 to TL 39.6 billion in 2010. Thus, the budget deficit that had reached 5.5 percent of
the GDP in 2009 declined to 3.6 percent in 2010 thereof. The improvement in the budget performance
continues in the first four months of 2011. While tax revenues that increased in this period, coupled
4
Please refer to: Special Topic V.6. Maturity Structure of Deposits.
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Financial Stability Report – May 2011
TÜRKİYE CUMHURİYET MERKEZ BANKASI
with the decline in interest expenses had a positive contribution to budgetary developments, the
slowdown in the growth rate of primary expenditures supported the improvement in budget
performance. Thus, the primary budget surplus was up to TL 16.2 billion year-on-year, whereas
budget deficit was down to TL 26.9 billion by April 2011 (Chart II.17 and II.18). Containing public
expenditures should be evaluated as a development supporting financial stability. Adherence to fiscal
discipline in the medium-term is important in terms of ensuring its continuance and sustainability of
the relative improvement in our sovereign risk.
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
04.11
45
40
35
30
25
20
15
10
5
0
Chart II.18. Budget Balance
Primary Budget Balance (Annual, Billion TL)
Primary Budget Balance/GDP (%) (R.-hand axis)
Source: Ministry of Finance
0
0.0
-10
-1.0
-20
-2.0
-30
-3.0
-40
-4.0
-50
-5.0
-60
-6.0
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
04.11
Chart II.17. Primary Budget Balance
Budget Balance (Annual, Billion TL)
Budget Balance/GDP (%) (R.-hand axis)
Source: Ministry of Finance
Faster than envisaged recovery in economic activity and the limited rise in primary
expenditures from the last quarter of 2009 affected public debt stock indicators
positively. The rate of increase of central government debt stock, which had increased by 16.1
percent in 2009 to reach TL 441.5 billion, slowed down and increased by 7.3 percent in 2010 to reach
TL 474 billion by year-end. Thus, the ratio of debt stock to GDP that had increased to 46.3 percent in
2009, declined to 42.9 percent in 2010 (Chart II.19). This positive outlook prevailed in the first quarter
of 2011 as well. 74.1 percent of central government debt stock, which rose by 7 percent in annual
terms to reach TL 486 billion by March 2011, is composed of domestic debts. As to the composition of
domestic debt stock, the share of TL denominated fixed-rate debts and CPI-indexed debts increased
in 2010 and 2011. In March 2011, the share of TL denominated fixed-rate debts in domestic debt
stock increased by 5.6 points to become 49.5 percent and CPI-indexed debts increased by 7.2 points
to become 16.2 percent, compared to end-2009. Moreover, the maturity of domestic debt stock also
increased from 24 months in 2009 to 34 months in March 2011 (Chart II.20). The decline in the share
of FX denominated and FX-indexed stock reduces sensitivity to exchange rate risk while the increase
in the share of fixed income securities and extension of maturities reduces sensitivity to interest rate
hikes, therefore both of them should be evaluated as a positive development.
Financial Stability Report – May 2011
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
Chart II.19. Central Government Debt Stock
Chart II.20. Composition of Domestic Debt Stock
600
47
120
37
500
45
100
32
400
43
80
300
41
60
200
39
40
100
37
20
0
35
27
22
17
12
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
04.11
0
12.07
12.08
12.09
12.10
04.11
TL Fixed Rate
TL Variable Rate
CPI Indexed
FX/FX Indexed
Maturity (months) (R.-hand axis)
Billion TL
% GDP (R.-hand axis)
Source: Undersecretariat of Treasury
Source: Undersecretariat of Treasury
Borrowing costs of the public sector hover below the pre-crisis levels. The treasury
discounted auction interest rate displayed a downward trend from early 2009 and is still at low levels
despite increases in February and March 2011. The rate that was 8.9 percent as of March 2011 stands
at 2 percent after being adjusted for 12-month inflation expectations (Chart II.21). The Eurobond
interest rate to mature in 2036, which was 5.8 percent in December 2010, increased to 6.5 percent as
of March 2011 on the back of concerns driven by the political unrest in MENA region and overlapping
of oil price hikes with the widening of the current account deficit in Turkey. However, it still hovers
somewhat below the pre-crisis level (Chart II.22).
Chart II.21. Treasury Discounted Auction
Interest Rate
Chart II.22. Eurobond Interest Rates1
25
11
700
10
20
600
9
500
8
15
7
400
6
10
300
5
200
4
5
Interest Rate (%)
Real Interest Rate (%)
Source: Undersecretariat of Treasury, CBRT
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
06.08
03.08
12.07
0
100
03.08
3
Eurobond Interest Rate (2036, %)
Eurobond Spread (2036, basis points) (R.-hand axis)
Source: Undersecretariat of Treasury
(1) Eurobond yield spread is calculated by taking into account the US
bond yields with same maturity.
Corporate sector debt increases while the share of their foreign borrowing
decreases. While no significant change was observed in corporate sector total financial debt in 2009,
it increased gradually in 2010 and became TL 461 billion by February 2011. Consequently, the ratio of
the corporate sector financial debt to GDP increased by 2.9 points year-on-year at end-2010 and
reached 39.1 percent (Chart II.23). As of February 2011, 59 percent of corporate sector financial debt
was denominated in foreign currency; however, the majority of this debt was long term. In the same
period, the share of foreign borrowing in total loans was 29.2 percent, whereas the share of loans
extended to the corporate sector by domestic and foreign branches and affiliates of Turkish banks in
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
total loans increased by 1.8 points compared to September 2010 and reached 79.8 percent
(Chart II.24).
Chart II.23. Financial Debt of Corporate Sector
(Billion TL, %)1
500
Chart II.24. Composition of Financial Debt (%)1
40
100
35
80
30
60
450
400
350
300
250
200
150
25
40
100
50
20
Domestic TL Loans
Source: CBRT
(1) Data for February 2011 are provisional.
Domestic FX Loans
02.11
01.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
0
12.08
02.11
01.11
12.10
09.10
06.10
03.10
Financial Debt /GDP (%) (R.-hand axis)
12.07
Financial Debt (Billion TL)
12.09
09.09
06.09
03.09
12.08
20
12.07
0
External Debt
Source: CBRT
(1) Data for February 2011 are provisional.
After the amendment to Decree No. 32 in June 2009, firms shifted their credit
utilization towards the domestic market and the external loans rollover ratio has
displayed an upward trend since end-2010. Between June 2009, when Decree No.32 was
amended, and February 2011, the amount of loans extended to the corporate sector by foreign
branches and affiliates of Turkish banks decreased by USD 9 billion, whereas loans extended by
foreign banks declined by USD 6.4 billion. On the other hand, FX loans extended by domestic
branches of banks, increased by USD 43.9 billion (Chart II.25). According to balance of payments
data, the external debt rollover ratio of non-banks was 171 percent as of March 2011; however,
taking into consideration the increase in the volume of FX loans extended by domestic branches, the
ratio is realized as 239 percent. The rapid increase in the external debt rollover ratio in March 2011
compared to end-2010 was mainly attributable to the surge in long-term external borrowing
(Chart II.26).
Financial Stability Report – May 2011
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TÜRKİYE CUMHURİYET MERKEZ BANKASI
Chart II.25. Non-Bank Sector Net FX Borrowing
(Billion USD)1
Chart II.26. Non-Bank Sector External Debt
Rollover Ratio (%)1
4.5
300
3.5
250
2.5
200
1.5
150
0.5
External Net Borrowing
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
Rollover Ratio
Adjusted Rollover Ratio
Domestic Net Borrowing
Source: CBRT
(1) Corporate sector net FX borrowing is computed by subtracting
repayments from borrowings in the respective month.
09.08
06.08
12.07
03.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.08
09.08
0
06.08
-2.5
03.08
50
12.07
-1.5
03.08
100
-0.5
Source: CBRT
(1). The external debt rollover ratio is computed from the balance of
payment statistics, by dividing non-banks’ borrowing with repayments.
The external debt rollover ratio of non-banks, which decreased due to the
amendment to Decree No: 32, has been re-calculated by taking into
account the rise in FX loans extended by domestic branches of Turkish
banks and the rise in repayments to domestic branches of Turkish banks.
In addition to the rise in borrowing, corporate sector revenues from sales have also
increased. While total amount of sales revenues of firms quoted on the Istanbul Stock Exchange
(ISE) increased by 25 percent year-on-year in March 2011, operating profits increased by 28 percent;
however, net profits decreased by 13.1 percent. Despite higher sales revenues and operating profits
of firms, financial expenditures that increased on the back of increased provisions for exchange rate
movements were instrumental in the decline of the net profit (Chart II.27). As a result of these
developments, the return on equity, which was 3.72 percent in March 2010, declined to 2.95 percent
in March 2011 (Table II.1). The decrease in the profit margin was influential on the decline of return
on equity of firms. The surge in financial expenditures, which are excluded from operating profits,
affected their profit margin negatively.
Chart II.27. Sales and Profitability of Firms by
March 2011 (Annual % Change)1
Table II.1. Return on Equity and Its
Components1
30
Net Profit / Equity (%)
Assets / Equity
Net Profit / Assets (%)
Sales / Assets
Net Profit / Sales (%)
Operating Profit / Sales (%)
Financial Income (Expenditures) / Sales (%)
25
20
15
10
5
0
-5
-10
-15
-20
Sales
Operating Profit
Mar.10
3.73
2.07
1.80
0.23
7.87
8.00
1.47
Mar.11
2.95
2.13
1.38
0.25
5.45
8.15
-1.31
Net Profit
Source: PDP
(1) Consolidated data of 227 manufacturing industry firms quoted on the
ISE.
Source: PDP
(1) Consolidated data of 217 manufacturing industry firms quoted on the
ISE.
The FX assets and liabilities of firms suggest that the net FX short position has
increased and currency risk still remains important for them. The net short position of the
corporate sector, which started to decrease after the global crisis, assumed an upward trend with the
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18
Financial Stability Report – May 2011
TÜRKİYE CUMHURİYET MERKEZ BANKASI
economic recovery. The FX short position that declined by 2.5 percent year-on-year in 2009 increased
by 28.6 percent in February 2011 and reached USD 100.1 billion (Chart II.28). As of February 2011,
the ratio of FX assets to FX liabilities went down by 1.6 points from the last quarter of 2010 and
declined to 47 percent (Chart II.29).
Chart II.28. Foreign Exchange Position of the
Corporate Sector (Billion USD)1
Chart II.29. FX Assets to FX Liabilities of the
Corporate Sector (%)1
0
56
-20
54
-40
52
-60
FX Net Position
02.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
03.09
12.07
02.11
12.10
09.10
06.10
03.10
12.09
09.09
06.09
46
03.09
-120
12.08
48
12.07
-100
12.08
50
-80
FX Assets / FX Liabilities
Source: CBRT
(1) Data for February 2011 are provisional.
Source: CBRT
(1) Data for February 2011 are provisional.
While household liabilities increased, the ratio of interest payments to disposable
income decreased. The rebound in economic activity and increased consumer confidence boost the
demand for consumer loans; as a result, household indebtedness continues to rise. The ratio of
household liabilities to GDP, which had been 15.4 percent in 2009, went up to 17.3 percent in 2010
(Chart II.30). However, household disposable income increased owing to the recovery in the labor
market and their borrowing costs dropped on the back of lower interest rates on loans. Thus, the ratio
of household interest payments to disposable income, which had been 5.2 percent in 2009, declined
to 4.4 percent in 2010 (Table II.2).
Table II.2. Household Disposable
Income/Liabilities and Interest Payments
(Billion TL)1,2,3
Chart II.30. Household Liabilities
(%, Billion TL)1
220
200
180
160
140
120
100
80
60
40
20
0
2008
2009
2010
Household Disp. Income
352.8
408.9
463.9
Household Liabilities
128.9
147.1
191.1
Household Interest Payments
19.7
21.1
20.4
Interest Paym. / Hh. Disp.
Income (%)
5.6
5.2
4.4
Liabilities / Hh. Disp. Income
(%)
36.6
36
41.2
20
18
16
14
12
10
8
6
4
2
0
06
07
08
09
10
03.11
Liabilities (Billion TL)
Liabilities/GDP(R.-hand axis
Source: BRSA-CBRT, TURKSTAT
(1) Household liabilities consist of gross consumer credits and credit card
balances extended by banks and consumer finance companies (including
NPLs) and liabilities to TOKI due to TOKI’s housing sales with long-term
maturity.
Financial Stability Report – May 2011
Source: BRSA-CBRT, TURKSTAT, SPO
(1) Household liabilities consist of gross consumer credits and credit card
balances extended by banks and consumer finance companies (including
NPLs) and liabilities to TOKI due to TOKI’s housing sales with long-term
maturity.
(2) As the repayments related to liabilities from TOKI’s housing sales with
long-term maturity are indexed to civil servant salaries, they are not
included in interest payments.
(3) Household disposable income has been calculated by using the private
sector disposable income estimation for 2010 as mentioned in the 2011
Annual Program, assuming that the ratio of household disposable income
for 2009, which was generated from the Income and Living Conditions
Survey, to private sector disposable income has not changed.
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19
TÜRKİYE CUMHURİYET MERKEZ BANKASI
While the share of other and housing loans within household liabilities has
increased, that of vehicle loans has increased modestly and the share of credit cards has
decreased. When the development of household liabilities is analyzed by type, it is observed that
other loans increased by 53 percent, housing loans went up by 42 percent, vehicle loans surged by
43.6 percent and credit card balances increased by 18.4 percent in March 2011 compared to end-2009
figures. As a result of these developments, while the share of other loans, housing loans and vehicle
loans within household liabilities increased, that of credit cards decreased (Chart II.31). Although
credit card balances continued to rise in 2010 and 2011, the ratio of credit card balances that incur
interest charges to total credit card balances declined compared to end-2009 (Chart II.32).
Chart II.31. Decomposition of Household
Liabilities (%)1,2,3
Chart II.32. Credit Card Balances of Deposit
Banks and Balances that Incur Interest Charge1
100
90
23.2
80
28.7
31.1
31.7
34.0
34.9
70
60
30.3
27.8
28.2
50
40
11.5
7.6
5.7
27.8
4.4
24.8
4.6
23.7
4.5
30
20
35.0
35.8
35.0
36.1
36.6
36.9
06
07
08
09
10
03.11
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
03.06
06.06
09.06
12.06
03.07
06.07
09.07
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
10
45
0
Housing Loans
Vehicle Loans
Credit Cards
Credit Card Balances Incurring Interest Charge
Credit Cards
Ratio (R.-hand axis)
Other
Source: CBRT-BRSA
(1) Household liabilities consist of gross consumer credits and credit card
balances extended by banks and consumer finance companies and
liabilities to TOKI due to TOKI’s housing sales with long term maturity.
(2) Liabilities to TOKI due to TOKI’s housing sales with long-term maturity
are also included in housing loans.
(3) Other loans consist of all consumer loans excluding housing and
vehicle loans.
Source: CBRT
The number of consumer loan and credit card defaulters has decreased while the
share of utilization of bank and credit cards in expenditures has increased. According to the
Central Bank Risk Center data, the number of consumer loan and credit card defaulters, which was
1,721,004 at end-2009, decreased to 1,626,024 by March 2011 (Table II.3). The ratio of expenditures
by bank and credits cards in private final consumption expenditures was 18.8 percent in 2006, this
ratio increased gradually over years and though with a lower rate of increase in 2010, it reached 28.2
percent (Chart II.33).
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20
Financial Stability Report – May 2011
TÜRKİYE CUMHURİYET MERKEZ BANKASI
Table II.3. Number of Credit Card and Consumer
Loan Defaulters1
Banks
2008
2009
2010
03.11
997,095
1,489,131
1,319,111
1,254,737
Asset
Management
Companies2
139,862
330,156
574,541
578,475
Finance
Companies
21,884
23,463
18,003
17,324
Chart II.33 Expenditures by Bank and Credit
Cards and Consumption of Resident Households
(Billion TL, %)1
1,000
30
800
25
20
600
15
400
10
200
Total3
1,093,474
1,721,004
1,689,788
5
1,626,024
0
0
06
07
08
09
10
Expend. By bank and credit cards
Consumption of resident households
Expend.by bank and credit cards/consump. of resident hh. (R.-hand axis)
Source: CBRT
(1) Customers with more than one registry to a particular financial
institution group are counted only once.
(2) Represents non-performing loans taken over by asset management
companies from the SDIF and banks.
(3) As customers may have registry to more than one financial institution
group, the sum of the three rows in the table and grand total are not
equal.
Source: TURKSTAT, ICC
(1) In order to calculate the amount of expenditures by bank and credit
cards amounts derived from domestic and external utilization of bank and
credit cards issued in Turkey are used.
Household liabilities do not bear interest rate and exchange rate risk. Most household
liabilities in Turkey are denominated in Turkish liras. As households in Turkey are not allowed to
borrow in foreign currency as per the amendment to Decree No. 32 in June 2009, the share of FXindexed credits decrease gradually and households do not take on FX-denominated debts. The ratio
of FX-indexed consumer loans to total consumer loans, which was 3.4 percent in 2009, decreased to
1.6 percent at end-2010 and went down to 1.3 percent in March 2011 (Chart II. 34). Besides the low
level of exchange rate risk they are exposed to, most of the loans granted to households do not bear
a significant interest rate risk, as they are fixed-rate loans.
Chart II.34. FX-Indexed Consumer Loans and
FX-Indexed Housing Loans (Million TL, %)
5,000
Chart II.35. Household Financial Assets and
Liabilities (Billion TL, %)1
10
9
8
7
6
5
4
3
2
1
0
4,000
3,000
2,000
1,000
0
06
07
08
09
10
03.11
FX Indexed Consumer Loans
FX Indexed Housing Loans
FX Indexed Cons.Loans/Total Cons. Loans (R.-hand axis)
FX Indexed Housing Loans/Housing Loans (R.-hand axis)
Source: CBRT-BRSA
500
450
400
350
300
250
200
150
100
50
0
50
45
40
35
30
25
20
15
10
5
06
07
08
09
10
03.11
Total Liabilities
Total Assets
Liabilities/Assets (R.-hand axis)
Source: BRSA-CBRT, CMB, CRA
(1) Household Assets = Savings Deposits +FX Deposits + Currency in
Circulation + GDDS + Eurobonds + Stocks + Repos + Pension Funds +
Mutual Funds (since December 2006). Household liabilities consist of
gross consumer credits (including NPLs) and credit card balances
(including NPLs) extended by banks and consumer finance companies and
liabilities to TOKI due to TOKI’s housing sales with long-term maturity.
The ratio of household liabilities to assets has increased. The ratio of household
liabilities to financial assets, which had declined slightly during the crisis, increased to 39.7 percent
due to liabilities rising faster than assets in 2010 and went up to reach 40.7 percent by March 2011
Financial Stability Report – May 2011
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21
TÜRKİYE CUMHURİYET MERKEZ BANKASI
(Chart II.35). The total assets of household, which was TL 420 billion in 2009, surged to TL 482 billion
in 2010 and to TL 503 billion in March 2011. The share of TL deposits, which constitutes the largest
portion of household assets, went up in 2010 and 2011 compared to 2009. The share of FX deposit
accounts in financial assets declined compared to 2009. Accordingly, the ratio of TL investment
instruments to FX investment instruments increased compared to end-2009. Moreover, the share of
government securities and Eurobonds decreased due to their low yields, while the share of equities
and private pension funds increased (Table II.4 and Chart II.36).
2009
Billion TL
2010
Share
Billion TL
03.11
Share
Billion TL
Share
TL Deposits
209.6
49.9
253.8
52.7
266.9
53.1
FX Deposits
98.2
23.4
96.9
20.1
96.3
19.2
- FX
Deposits
(Billion USD)
65.2
-
62.7
-
62.3
-
35.4
8.4
44.6
9.3
47.1
9.4
14.1
3.3
9.4
2.0
10.1
2.0
Currency in
Circulation
GDDS+Euro
bond
Mutual
Funds
Stocks
Private
Pension
Funds
Repos
Precious
Metal
Deposits
Total
Assets
26.1
6.2
28.5
5.9
28.7
5.7
24.6
5.9
32.6
6.8
35.8
7.1
9.0
2.1
12.1
2.5
12.4
2.5
2.3
0.5
1.5
0.3
1.9
0.4
1.1
0.3
2.3
0.5
3.3
0.7
420.4
100
481.7
100
502.5
100
Source: BRSA-CBRT, CMB, CRA
(1) TL and FX deposits include participation funds.
Chart II. 36. Ratio of Household TL Investment
Instruments to FX Investment Instruments1
4.2
4.0
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
4.2
4.0
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
12.06
03.07
06.07
09.07
12.07
03.08
06.08
09.08
12.08
03.09
06.09
09.09
12.09
03.10
06.10
09.10
12.10
03.11
Table II.4. Composition of Household Financial
Assets (Billion TL, %)1
(a)
(b)
Source BRSA-CBRT, CMB, CRA
(1) TL Instruments = Deposits + Repos + GDDS. + Participation Funds
(TL) + Stocks + Private Pension Funds + Mutual Funds (starting from April
2006); FX Instruments = FX Deposits + GDDS. + Eurobond, (a) Current TL
value of FX deposits and Participation Funds (FX). (b) For FX deposits and
Participation Funds (FX), exchange rate prevailing on 29.12.2006 is used
and the parity effect is eliminated.
In the forthcoming period, the vulnerability of financial stability might increase in
the face of short-term capital inflows that may remain strong, high growth rate in credit
volume and persistent expansion in the current account deficit. While downside risks
regarding the global economy persist, upside risks become important as well. Uncertainties over
sustainability of debt dynamics and problems regarding credit, real estate and labor markets prevail in
many developed countries. Besides, hikes in oil prices also impose a downside risk on the pace of
global economic recovery. Short-term capital inflows might remain strong in the case of a slower than
expected recovery in advanced economies, hence the rise in credits and the current account deficit
may continue. Meanwhile, faster than expected recovery in global economic activity might give way to
inflationary pressures in advanced economies in the upcoming period. This development might lead to
a rise in global policy rates and a deviation in the direction of capital flows. The CBRT, considering
external demand, capital flows and increased indebtedness of households and firms, will continue to
use macroprudential policy instruments effectively in the forthcoming period as well.
Recent concerns over sustainability of increased public debt especially in some Euro
area countries have relatively weakened short-term capital inflows towards emerging
economies. Accordingly, the daily auction amount of our foreign exchange buying auctions was
reduced from USD 50 million to USD 40 million. Should this trend continue, the CBRT might continue
to reduce the daily auction amount for FX purchases gradually. In such a case, the amount of TL
liquidity to be provided to the market by this channel will also decrease, which, in turn, will ease the
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22
Financial Stability Report – May 2011
TÜRKİYE CUMHURİYET MERKEZ BANKASI
potential need for additional increases in required reserve ratios with respect to credit growth in the
second half of 2011. In the upcoming period, additional measures that might be taken by other public
authorities in coordination with the CBRT will similarly reduce the need for further increases in reserve
requirement ratios.
Financial Stability Report – May 2011
________________________________________________________
23