Ümit Leblebici, General Manager of Turkish Economy Bank (TEB), brings Business Diplomacy readers a special review of the Turkish economy and the Turkish banking sector for 2019
We sat down with Ümit Leblebici, the general manager of Turkish Economy Bank (TEB), both to reflect on 2019 for Turkish economy and Turkish banking sector, as well as to ask him about what he foresees for 2020. Leblebici expressed that, “We might view 2019 as being the ‘the year of putting things back on track’. On the other hand, 2020 will be the year of ‘everything is back on track, now how do we grow?”
What was 2019 like for the Turkish economy, in your opinion? What are your projections for 2020?
2019 marked us juggling between climbing our way out of the unwarranted 2018 slump, dealing with elections, and handling our critical operation in Syria. It was a year stained by uncertainty and unpredictability. Thankfully, these pitfalls are now behind us.
2019 marked a period for the Turkish economy where banks and companies alike were hit by the ‘aftermath of the wave.’ In other words, 2019 was the year of putting everything ‘back on track’, so to speak. Therefore, 2020 will be the year where ‘everything is back on track, now how do we grow?’. We expect things this time around to go much more smoothly. As predictability increases, so do people’s appetite to invest. The macro-economic picture shows us our attempt at balancing things is now beginning to gain momentum in terms of growth. Credit channels and banks are hungry to lend. We also see a more positive picture when it comes to people requesting loans, which is/will be backed by numerous policies. We now must put the pedal to the medal and trigger growth. The economy has the potential to grow by 4% in 2020.
I’d also like to add that 2019 was tense year for international trade. Trade wars severely impacted much of the world economy this past year, and they will continue to do so in the coming year. Hence, we really need to brace ourselves. We’ve got to set up new business associations and enter into free trade agreements. We need to create an agreement environment that is somewhat safe from the impact posed by Brexit.
That said, 2020 we’ll see the world economy continue to support Turkey. The system no longer allows for extreme fluctuation. Despite fluctuations in the exchange rate, long-term investors have remained with us, and have even replaced foreign investors chasing after short-term returns. 2020 will open the door for foreign investors to buy new companies.
How do you think the market would react were Turkish exchange rates to fluctuate again?
Should the fluctuation in 2020 be lower than we anticipate it will be, then we will respond to that with lower inflation. While the market is expecting to see an inflation of about 10%, I predict that will be slightly lower, at around 8%. I’m optimistic and firmly believe that we’ll see interest rates drop down to a single digit. Right now, our outlook about the current account balance is positive, albeit things may go slightly negative as well. We’ll need to import in order to replenish our stocks. However, this will be very minimal at best, around 1% or $6 – 7 billion USD.
What do you think about the Central Bank of the Republic of Turkey (TCMB)’s decision to slash interest rates? How might it impact the Turkish economy?
Well, we went through a period of high volatility. High interest rates in fact are one of many tools used to prevent fluctuations. Similar interest rate slashing measures in other developing economies has now granted us the chance to slash our own rates in conjuncture. The TCMB made the right moves at the right time to stimulate the Turkish economy by slashing interest rates.
Of course, its timing has depended mostly on external developments. That said, I feel that the current environment supports these slashes. The likelihood that exchange rate will remain steady throughout the coming period is high. There is also a chance that inflation may lower even further as well. This will make things easier for the TCMB as well, which has been trying for a while to lower the interest rate in order to stabilize the economy. It hopes to bring the rate down to one digit in the period to come. My thought is that this will take place in the first quarter, or at least soon.
What are you expecting to happen globally in 2020?
The world’s major central banks, I think, will continue to be quite active in the coming year. Europe still has not fully recovered, for instance The ECB (European Central Bank) is still working on lifting the European economy back up. The FRS (Federal Reserve System) in the United States will also continue to expand its balance sheet for at least another year even if interest rate has come to a grinding halt.
What is your take on Turkey’s banking sector, in short, for last and this year?
Our position has always been, “Turkey’s banks have a very robust balance sheet.” Despite what we’ve read about in foreign reports, we’ve nevertheless put our banks to the test to see just how robust they are. 2019 marked a year of testing and balancing for the Turkish banking sector. Every last one of our tested their balance sheets and came out of 2019 strong. In a sense, everyone was trying to ‘tidy house’… collaborating with the public and private sector, as well as coordinating the regulation side of things in order pick things up. Banks also did their homework as well. They renewed syndications, and stabilized liquidity. The result is an infrastructure that Turkey is now ready to finance the growth of in 2020. This too was part of that homework you might say.
2020 will be all about ‘credit growth’ for the Turkish banking sector. Growth will most definitely surpass that of 2019. We also are going to see the impact of an increased demand for credit. Here, what is import is for us to go with a policy that will balance both domestic and foreign demand. People will begin to consume more as the economy begins to grow, and as people feel slightly more at ease. Turkey, in this regard, is one very lucky country.
What moreover helps matters is that her population is young and they too come with their own set of demands. This demand has had to be put on hold for two years. Now we’re expecting that things will pick back up this year. As part of this growth, loan interest rates may drop down by 2 or 3 points.
When it comes to credits, 2020 will be about exports. People will feel the need for resources in order to renew investments. When we look at what’s happening on the ground, we see at there more demand for credit mainly directed towards working capital, new machinery, and modernization. What’s more, there’s a good reason for this. Turkey has been unable to accumulate stock for two years, meaning that it’s been forced to postpone investments. Until now, we’ve had to essentially eat up our present stock. We hence need to increase our stock and invest again. We need to invest in renewing machinery and increase our capacity. All of this spells an increase in demand for credit.
In the banking sector, 2019 saw profitability contract. What’s in store for 2020?
Indeed, the sector did experience a slight contraction in 2019. Despite that, we expect that things will be 2020 than they were in 2019. With growth comes competition. But, a lack of credit demand and high supply might put pressure on the balance sheet. Nevertheless, banks will adjust accordingly. The source of that profit predominantly will be small and medium sized enterprises. Banks that are good with SMEs and corporations are more profitable.
TEB General Manager & DEİK Board of Directors Member Ümit Leblebici