Transcript Impacts on Turkish Banking and Financial Sector

GLOBAL FINANCIAL TURBULENCE
AND ITS IMPACTS
MEHMET YÖRÜKOĞLU
CENTRAL BANK OF TURKEY
DEPUTY GOVERNOR
October 2008
Contents
I.
Reasons behind the turbulence,
II.
Measures taken so far …
III. Impacts of the turmoil on;
III.1. Emerging markets,
III.2. Turkey;
IV. Prospects.
2
Reasons Behind the Turmoil
Real Policy Rate in USA
 Loose Monetary Policies:
(January 1981 – September 2008, percentage)
5
As a result of low real interest rates in the
4
developed economies, especially in USA,
3
2
1
0
-1
-2
-3
during the period 2001 – 2005, investors
initiated leveraged transactions and used risky
instruments in order to gain high yields.
 Lack of Transparency and Supervision :
-4
Parallel to the widespread use of originate-to95
distribute business models, financial innovation
96
97
98
99
07
08
OFHEO
0
-5
-10
-15
Case&Shiller
Source: OFHEO, Standard&Poors
07-08
01-08
07-07
01-07
07-06
01-06
07-05
01-05
07-04
01-04
07-03
-20
01-03
about increase in the mortgage foreclosure rate.
06
5
07-02
household consumption demand and brought
05
10
01-02
the first quarter of 2006 adversely affected
04
15
07-01
Decline in house prices in USA that began in
03
(January 2001 – July 2008, annual percentage change)
20
01-01
 Problems in the Housing Sector :
02
Housing Price Index
instruments were used widely, which in turn
analysis of these investments.
01
Soruce: FED, Bureau of Labor Statistics
and technolobical advancements, complex
complicated tracing of the investments and risk
00
3
Reasons behind the Turbulence
What triggered the crisis?
Increased delinquency rate in sub-prime mortgages and therefore
decline in mortgage-backed securities (MBS).
•
Big exposures of financial institutions which also have high leverages
to these MBS.
 Increased risk appetite in the face of low real interest rates
 Creation of complex financial instruments in search of higher
profitability
 “Originate to distribute” model and extensive use of off-balance
sheet instruments
 Imprudent credit decisions
•
Erosions of capital due to financial losses
 Cut back in loan supply
4
Reasons behind the Turbulence
Uncertainty in financial markets transformed into
a trust problem between financial institutions
In spite of correcting actions of regulatory bodies, arising financial
weaknesses of large financial institutions such as Lehman Brothers,
Bear Stearns, Merrill Lynch, Fannie Mae, Freddie Mac, Washington
Mutual Fund and AIG.
5
Global Losses

As of October total losses that the international financial system has suffered reached 659
billion US Dollars.

IMF revised its global loss forecast from 945 billion US Dollars to 1.4 trillion US Dollars.

During the same period banks were able to raise up equity by 638 billion US Dollars.

Due to the financial turmoil banks faced significant losses and hence they tightened the credit
standards significantly.
Losses in the Banking and Financial Sector
Ratio of Banks Reporting Tightening
Credit Standards to the Total Banks
(billion US dollars)
World
200
60
USA
150
(2006 Q1 – 2008 Q3, quarterly, percentage)
70
Europe
50
Europe
40
100
USA
30
20
Asia
10
50
Source: Bloomberg
Source: FED, ECB
2008 Q3
2008 Q2
2008 Q1
-20
2007 Q4
08 Q3
2007 Q3
08 Q2
2007 Q2
08 Q1
2007 Q1
07 Q4
2006 Q4
07 Q3
2006 Q3
2007 Q2
and Earlier
2006 Q2
-10
0
2006 Q1
0
6
Measures taken so far …
 Coordinated response of Central Banks by providing
liquidity support
 Bail outs from U.S. and European governments
 Intervention of US government by its fiscal policy
•
Capital injection and assets expansion by accepting as collateral,
•
Encouraging some banks to fund the troubled banks by secured funding,
•
Paying interest on depository institutions required and excess reserve balances
(by Fed),
 Guarantee on bank deposits and/or other liabilities in USA
and Europe
7
Impacts of the Turmoil

Volatility index (VIX) has reached its highest level of the last 19 years, surpassing
previous highs seen during the Asian crisis, dot-com bust and after the 11 September
attacks.

TED spread, an indicator of credit risk in the economy, used to range around 50 basis
points prior to the start of the turmoil but lately the spread has widened to around 460
basis points.
Difference Between LIBOR and US Treasury Bill
(3 month)
Volatility Index
72
(2 January 1990 – 20 October 2008)
(1 January 2007 – 6 October 2008, basis points)
400
64
350
56
300
48
250
40
200
32
150
Long-term average
100
24
Source : Bloomberg
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
Source: Bloomberg
03-07
0
8
01-07
50
16
8
Foreign Exchange Rates and Risk Indicators

Since the beginning of August fall in the value of Turkish Lira against US Dollars is close
to the average depreciation rate of emerging economies’ currencies.

In the second quarter of 2008 Turkey’s risk premium increased more than that of other
developing countries. Yet, a marked correction has been observed since July 2008.
Change in the Spot Foreign Exchange Rate vs
USD
Risk Indicators
(2 January 2008 – 20 October 2008, basis points)
(between 1 August 2008 and 16 October 2008, percent)
700
Isralie Shekel
Taiw an Dolar
Indonesian Rupee
Singapore Dolar
Phillippine Peso
Malaysian Ringgit
Ukraine Hryvnia
Russian Ruble
Lithuanian LTL
Latvian Lats
Indian Rupee
Czech Koruna
Turkish Lira
South Korean Won
Romanian Ley
Chilean Peso
Mexican Peso
Polish Zloty
South African Rand
Colombian Peso
Hungarian Forint
Brazilian Real
Iceland Koruna
650
400
600
550
300
500
450
200
EMBI +
EMBI + Turkey
400
100
350
300
0
250
(Turkey) – (EMBI+)
200
Source: OANDA
Source: JP Morgan
15.10.2008
29.09.2008
12.09.2008
27.08.2008
28.07.2008
12.08.2008
10.07.2008
25.06.2008
10.06.2008
45
08.05.2008
40
23.05.2008
35
23.04.2008
30
08.04.2008
25
24.03.2008
20
06.03.2008
15
04.02.2008
10
20.02.2008
5
17.01.2008
0
-100
02.01.2008
-5
500
9
Potential Impacts on Turkish Economy
 Banking and Financial Sector
 Capital Inflows and Current Account Deficit
 Economic Activity
 Exchange Rate and Inflation
10
Impacts on Turkish Banking and Financial Sector
 Until now, limited effects on banking and financial
sector due to,
• Considerable improvement in macroeconomic stability,
• Prudent macroeconomic policies,
• Conservative Regulation and Supervision,
• Tools used by Central Bank of Turkey to calm the markets,
such as reintroduction of FX deposit market,
• Tight fiscal policy and monetary policies.
11
Banking Sector
 Compared to earlier periods Turkish
banking sector’s resilience has improved
remarkably.
 The sector does not hold a noteworthy FX
short position.
 Net FX positions of the banks are at a low
level compared to their equity capital.
Net FX Position of the Banking Sector
(2000 Q1 – 2008 Q3*, billion USD)
1
0
-1
-2
-3
-4
-5
-6
2008 Q3
2008 Q1
2007 Q3
2007 Q1
2006 Q3
2006 Q1
2005 Q3
2005 Q1
2004 Q3
2004 Q1
2003 Q3
2003 Q1
2002 Q3
2002 Q1
2001 Q3
2001 Q1
2000 Q3
Capital Adequacy Ratio
28
(December 2005 – July 2008, percent)
24
respectively.
20
 Strong capital structure and high profit to
equity ratios curtail banking sector’s
vulnerability to the financial turmoil.
16
Operational
risk included
Target rate is 12%
12
8
Legal limit is 8%
4
Source: BRSA, CBT
06-08
04-08
02-08
12-07
10-07
08-07
06-07
04-07
02-07
12-06
10-06
08-06
06-06
04-06
0
02-06
 Banks’ short-term FX liquidity and total
short-term liquidity adequacy ratios remain
above the legal limits of 80% and 100%,
* As of 19 September 2008
Source: BRSA, CBT
12-05
 The capital adequacy ratio is well above
the legal limit and the EU average of 12.1%.
2000 Q1
-7
12
Banking Sector
Short-Term FX Liquidity Ratio
Total Short-Term Liquidity Ratio
(6 July 2007 – 12 September 2008, percent)
(6 July 2007 – 12 September 2008, percent)
300
300
250
250
0-7 days
0-7 days
200
200
Up to 1 month
Up to 1 month
Source: BRSA, CBT
09-08
08-08
07-08
06-08
05-08
04-08
03-08
02-08
01-08
12-07
09-08
08-08
07-08
06-08
05-08
04-08
03-08
02-08
01-08
12-07
11-07
10-07
0
09-07
0
08-07
50
07-07
50
11-07
Legal limit is 80%
Legal limit is 100%
10-07
100
09-07
100
08-07
150
07-07
150
Source: BRSA, CBT
13
Banking Sector
Ratio of Non-Performing Loans to Total Loans
(2003 vs. 2007, percent)
14
12
11.5
10
Developing Countries*
8
6
Turkey
Developed Countries**
4.9
3.9
4
3.5
3.7
2.8
2
0
2003
2007
* Developing countries: Argentina, Brazil, Bulgaria, Czech Republic, Croatia,
Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Ukraine
** Developed countries: France, Germany, Italy, United Kingdom, USA
Source: IMF, CBT
14
Bank Credits
Business Loans and Retail Loans
(1 January 2006 – 5 September 2008, year-on-year percentage change)
90
80
70
60
50
40
Retail Loans
30
20
Business Loans
10
08-08
07-08
06-08
05-08
04-08
03-08
02-08
01-08
12-07
11-07
10-07
09-07
08-07
07-07
06-07
05-07
04-07
02-07
03-07
01-07
12-06
11-06
10-06
09-06
08-06
07-06
06-06
05-06
04-06
02-06
03-06
01-06
0
Source: CBT
15
Households
FX Debt of Households
Total Household Liabilities
((2003 – September 2008,
percent of total consumer loans)
(2004 – 2006, percent of GDP)
70
10
63
60
8.6
57
60
8
6.4
European
Union
50
6
4.8
4
4.6
3.6
40
Eastern
Europe
3.9
30
23
Turkey
2
20
17
12
0
10
2003
2004
2005
2006
2007
Sep-08
9
8
5
0
2004
Source: CBT
2005
2006
Source: ECB, CBT
16
Impacts on Turkish Banking and Financial Sector
Banking sector is still quite small with a strong potential to grow.
(%)
Italy
Greece
Finland
Latv ia
Czech Republic
Bulgaria
Hungary
Lithania
Poland
Turkey (B)
Turkey (A)
Romania
Denmark
Belgium
Netherlands
France
EU27
Austria
MU13
Germany
Spain
Portugal
Sweden
Ireland
UK
Luxembourg
(2533)
•
0
100
200
300
400
500
600
700
800
900
Turkey (A) shows the data of 2007 including participation banks; Turkey (B) shows the data of
June 2008 including participation banks. For EU members, the data of 2007 is used.
Source: Turkstat, BRSA-CBRT, ECB.
17
0.7
Leasing
companies
Factoring
companies
Consumer
finance
0.6
0.5
0.5
0.1
Investment
companies
1.2
Pension funds
2.0
Real estate
investment
3.0
Securities
brokerage firms
3.3
Insurance
companies
88.1
Mutual funds
100
90
80
70
60
50
40
30
20
10
0
Banks
(incl.participation
(%)
Impacts on Turkish Banking and Financial Sector
Source: BRSA,CBRT, Association of Capital Market Intermediary Institutions, CMB
(1) Figures are as of June 2008.
•Financial system in Turkey is bank dominated;
•No toxic financial instruments in banks’ portfolio;
•Shallow markets for complex financial derivatives.
18
Impacts on Turkish Banking and Financial Sector
Financial Stability Index
Index
122.0
119.0
116.0
113.0
Financial Stability Index
08.08
12.07
12.06
12.05
12.04
12.03
12.02
110.0
Average
Source: CBRT
•FSI is a composite index that is used as a measure of the
financial soundness.
•It indicates a sound Turkish banking sector.
19
Inflation Developments in Turkey

Thanks to achievements in price stability, Turkey’s ranking in terms of inflation has
improved.

While in the 1997-2003 period, Turkey was among the 10 countries with highest inflation
in the world, as of September she declined to the 62th position.
140
Turkey in the Global Inflation Ranking
Inflation in Turkey
(1997 – 2008)
70
(1980 – 2008*)
62
120
60
55
100
50
80
40
60
Inflation
Targeting
Regime
40
34
30
25 26
7
10
8
9
2003
0
4
7
2002
10
1999
20
1998
20
4
* 2008 forecast of the Central Bank of Turkey
Source: IMF, TURKSTAT, CBT
* Most recent data as of September 2008
The total number of countries is 155. The ranking is in descending order.
Source: IMF, TURKSTAT, CBT
2008*
2007
2006
2005
2004
2001
2000
1997
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
20
Effects on the Turkish Economy; Inflation

As a result of global crisis commodity prices, especially food and energy prices, declined
drastically.

Falling commodity prices, moderating domestic demand and depreciation of Turkish Lira
will have favorable effects on the current account deficit and an improvement in the
current account deficit is expected in the months to come.
Current Account Balance and The Effect of
Energy Prices on the Current Account
Deficit*
Wheat Price
(1 January 2007 – 9 October 2008, US Dollars/Bushel)
14
12
(2002 – 2007, percent of GDP)
10
8
2002
2003
-0.7
-1.8
2004
2005
-2.5
-2.4
2006
2007
0
6
-1
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
4
-2
-2.9
Source: Chicago Board of Trade
Oil Prices
(NYMEX WTI, 1 January 2007 – 9 OCtober 2008, US Dollars)
160
-3
-4
140
120
-5
-2.7
-2.5
-3.7
-4.6
Current Account Deficit
100
-6
80
60
-7
Source: Bloomberg
09-08
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
40
-5.7
-6.1
* Keeping energy prices constant at 2002 levels.
Source: TURKSTAT, CBT
21
Effects on the Turkish Economy; Inflation

Favorable developments in commodity prices and deterioration in the domestic demand
suggest that inflation will improve in the following months.

However, recent depreciation of Turkish Lira may create upward pressure on the inflation
rate in the short-run.

The items outside the domain of monetary policy such as food prices, food and energy
prices prices contributed to annual inflation by 41% in 2004-2006 period, whereas their
contribution rose to 63% in September 2008.
Components of Annual Inflation
(percentage share)
2004 – 2006 Average
Food and Energy
September 2008
Food and Energy
40.9
37.5
59.1
62.5
Other Goods and
Services
* Food: Food and Non-Alcoholic Beverages
** Tobacco: Tobacco Products and Alcoholic Beverages
Source: TURKSTAT, CBT
Other Goods and
Services
22
Balance of Payments – Current Account
Domestic Savings and Investments
(2001 – 2007, percent of GNP)
30
25.4
Investments
25
24.9
23.8
24.4
22.6
20.0
20
19.2
19.3
20.2
18.2
17.5
15
17.3
16.0
15.1
Domestic Savings
10
2001
2002
2003
2004
2005
2006
2007
* 1987 based series
Source: SPO Program for 2008, CBT
23
Balance of Payments – Current Account
Current Account Balance and The Effect of Energy Prices on
the Current Account Deficit*
(2002 – 2007, percent of GDP)
2002
2003
2004
2005
2006
2007
0
-1
-0.7
-1.8
-2.5
-2
-2.4
Current Account Deficit Excluding
the Effect of Energy Prices
-2.9
-3
-2.7
-2.5
-4
-3.7
-4.6
-5
Current Account Deficit
-6
-5.7
-6.1
-7
* Keeping energy prices constant at 2002 levels.
Source: TURKSTAT, CBT
24
Capital Flows
Financing of the Current Account
Financing of the Current Account
(2000 – 2008*, percent of current account deficit)
100
Long Term Credits 2
80
(2000 – 2008*, percent of current account deficit)
100
Non-Bank Private
Sector Credits 2
80
Portfolio Investments 4
Foreign Direct
Investment 3
60
Foreign Direct
Investment 3
60
40
40
20
20
0
0
Bank Credits 1
Equities 5
Short Term Credits 1
-20
-20
-40
-40
2000
*
2003
2004
2005
2006
2007
2008*
Last 12 months as of 2008 May
Short Term Credits: Net short term loans of the banking sector, non-bank private
sector and the public sector, plus trade credits
2 Long Term Credits : Net long term loans of the banking sector, non-bank private
sector and the public sector
3 Foreign Direct Investment: Foreign direct investment inflows
4 Portfolio Investment: Purchases of equities and securities by nonresidents and
deposits of nonresidents
1
Source: CBT
Public Sector Borrowing 4
2000
*
2003
2004
2005
2006
2007
2008*
Last 12 months as of 2008 May
Bank Credits: Short and long-term borrowing of the banking sector
2 Non-Bank Private Sector Credits : Short and long term borrowing of the non-bank
private sector, plus trade credits
3 Foreign Direct Investment: Foreign direct investment inflows
4 Public Sector Borrowing: Purchases of government securities (including Eurobonds) by
nonresidents, credits to central government and to the Central Bank (including IMF credits)
5 Equaities: Purchases of equities by nonresidents
Source: CBT
25
1
Foreign Direct Investment
Foreign Direct Investment
Foreign Direct Investment Inflows
(Annual, billion US dollars)
(2006, billion US dollars)
30
25
22.0
19.9
20
15
10.0
10
5
1.0
1.1
1.8
Average
of 19902001
2002
2003
2.9
0
2004
2005
2006
2007
China
83.5
Hong Kong
60.0
Russia
52.5
Singapore
24.1
Turkey
22.0
Mexico
24.7
Brazil
34.5
India
22.9
Romania
9.7
Chile
14.4
Source: UNCTAD
Source: CBT
26
Economic Growth
Cumulative GDP Growth
(Percentage change, 2001-2007)
60
48.6
50
40
32.9
30
30.4
30.2
24.9
23.9
18.6
20
10
0
Brazil
Czech
Republic
South
Africa
Hungary
Mexico
Poland
Turkey
Source: TURKSTAT, IMF World Economic Outlook
27
Productivity and Wages
Productivity, Real Wages and Real Unit Wages in the Manufacturing Industry
(1998 Q4 – 2008 Q1, per hour worked, 4-quarter moving average, logarithmic scale)
2.25
2.10
Productivity Index
(lhs)
2.20
2.05
2.00
2.15
1.95
2.10
1.90
Real Wages Index
(rhs)
1.85
2.05
1.80
2.00
Real Unit Wages Index
(rhs)
1.75
1.95
Source: TURKSTAT, CBT
2007 Q4
2007 Q2
2006 Q4
2006 Q2
2005 Q4
2005 Q2
2004 Q4
2004 Q2
2003 Q4
2003 Q2
2002 Q4
2002 Q2
2001 Q4
2001 Q2
2000 Q4
2000 Q2
1999 Q4
1999 Q2
1998 Q4
1.70
28
Export Performance
Turkey’s Share in World Exports
(1950 – 2007, percent)
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0.0
Source: WTO, CBT
29
Foreign Trade
Real Imports and Real Exports Indices
(1982 – 2007, 2003 = 100)
Imports and Exports Growth
40
180
(January 2006 – August 2008, 12-month rolling
year-on-year change, in USD, percent)
35
30
160
Exports
25
20
140
15
Imports
10
120
5
100
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
11-06
09-06
07-06
05-06
Imports
03-06
80
01-06
0
35
30
60
Exports
25
40
Exports
20
20
Imports (ex-oil)
15
07-08
05-08
03-08
01-08
11-07
09-07
07-07
05-07
03-07
01-07
11-06
09-06
07-06
05-06
03-06
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
Source:TURKSTAT, CBT
01-06
10
0
Source:TURKSTAT, CBT
30
Export Performance
Composition of Turkey’s Exports
(top 8 export sectors, billion USD)
100
14.5
Apparel and clothing
9.7
Textile yarn, fabrics
9.0
Food and live animals
8.8
Industrial Machinery
9.9
Chemicals and
petroleum products
13.5
Iron and steel
15.2
Electrical machinery
and appliances
Motor vehicles
80
60
40
8.1
20
-
6.1
2.7
3.6
0.7
1.3
1.3
1.9
1.0
6.6
3.7
2.9
1.3
2.1
1.6
1.9
2.3
4.3
3.1
1.8
3.2
2.2
2.8
3.6
22.4
1996
2000
2002
2008
* 12-month rolling as of May 2008
Source: TURKSTAT, CBT
31
Public Sector

Public sector has become more resilient to external shocks due to tight fiscal policy that
has been implemented since 2001.

The Treasury maintains a high level of FX reserves with the aim of minimizing any
liquidity risk that might arise in cash and debt management.
Public Sector Net Debt Stock / GDP
EU Defined General Government Budget Deficit
(2000 – 2008 Q2, percent of GDP)
(2001 – 2007, percent of GDP)
30
25
70
66
Total Net Debt Stock
62
24.5
60
50
20
Maastricht Criteria: 3.0%
55
49
43
39
40
15
30
10.2
9.0
10
36
34
38
0.6
1.3
0.1
0
0
2001
2002
Source: Treasury
2003
2004
2005
2006
2007
28
26
35
30
28
4.5
10
29
36
29
20
5
Net Domestic
Debt
Net Foreign
42
Debt
14
25
17
13
6
4
28
27
24
1
1
2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2008
Q1
Q2
Source: Treasury
32
Central Bank Foreign Exchange Reserves
Ratio of Short Term Debt to
Central Bank FX Reserves
Central Bank FX Reserves
(2002- September 2008, billion USD)
(1996 – 2008 Q1, percent)
90
160
80
76.2
71.3
70
120
58.3
60
100
48.3
50
80
40
30
140
33.7
36.0
60
27.0
20
40
10
20
0
2002
2003
Source: CBT
2004
2005
2006
2007
2008 Sep
0
96 97 98 99 00 01 02 03 04 05 06 07 08
Source: CBT
33
Prospects for World Economy
Challenges for the world economic outlook
•
•
•
•
•
•
•
•
Coupling,
Further squeeze in liquidity and increase in funding cost,
Further deterioration of expectations and confidence in
international markets,
Slowdown in world economic growth,
Unemployment,
New architecture of financial markets
• Consolidation
• Reshaping of financial institutions
Need for effective regulation and supervision,
Coordination and cooperation among both
local and cross border authorities.
34
Thank you.
MEHMET YÖRÜKOĞLU
CENTRAL BANK OF TURKEY
DEPUTY GOVERNOR
October 2008
Public Sector
General Budget Primary Expenditures and
Tax Revenues
(Program defined, 3-month total, 2006 Q1- 2008 Q3*,
Central Government Primary Balance
(March 2007 – August 2008, year-on-year change,
3-month moving average, percent)
TRY billion)
12
2008
2007
40
10
Tax Revenues
30
8
20
6
10
4
0
2
Primary
Expenditures
*July-August average
Source: Undersecretariat of Treasury
08-08
07-08
06-08
05-08
04-08
03-08
02-08
01-08
12-07
11-07
10-07
09-07
08-07
07-07
Ç4
06-07
Ç3*
05-07
Ç2
04-07
Ç1
03-07
-10
0
Source: Ministry of Finance
36
Corporate Sector

The FX position of the non-banking sector was USD 73.8 billion as of the first
quarter of 2008.

Short term net FX position of the real sector is about 2 billion USD.

Maturity composition of the real sector debt has extended considerably.
FX Position of the Corporate Sector
Maturity Composition* of the Long-term
External Debt of the Corporate Sector
(2005 – 2008 Q1, billion USD)
(as of July 2008, billion USD)
200
FX Assets
160
120
100
72
80
63
70
FX Liabilities
108
66
128
117
68
73
155
139
78
60.1
60
81
46
50
39.9
40
40
30
0
22.9
17.6
20
-40
-80
Net FX Position
-120
10
0
2005
2006
Source: CBT
2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1
2008
* Days to maturity
Source: CBT
2009
2010
2011 and later
37
Households

In Turkey, the practice of variable interest rate for consumer loans is limited. FX
denominated loans are not extended to consumers and companies with no FX income.
FX-indexed consumer loans make up only 4.1 % of total amount of consumer loans.

Household indebtedness is at a low level compared to European Union and Eastern
Europe countries..
20
Ratio of FX-indexed Consumer Loans to Total
Consumer Loans
Ratio of Household Liabilities to GDP
70
(2004-2006, percent)
(2003 – September 2008, percent)
18
63
60
57
60
16
European
Union
50
14
12
40
10
Eastern
Europe
8.6
30
8
23
6.4
6
4.8
3.6
4
3.9
4.1
Turkey
20
17
12
10
2
9
8
5
0
0
2003
Source: CBT
2004
2005
2006
2007
2008 Eylül
2004
Source: ECB, CBT
2005
2006
38
Commercial Activities

Parallel to the economic activities that gained pace between 2002 and 2007, the number
of bad checks increased in line with the number of bank checks used.The ratio of the
amount of bad checks to the total checks submitted to the clearing house, which was
6.8% in 2003, declined to 5.5% in 2007. This ratio stood at 5.1% as of July 2008.

Likewise, the ratio of protested bills to commercial loans (an indicator of commercial
activities) declined to 2.9% in Augustos 2008 after reaching 11% in 2002.
Ratio of the amount of Protested Bills to (12 months,
cumulative, real) Total Commercial Loans
(January 1999 – August 2008, real, percent)
Ratio of Bad Checks to the Total Amount of Checks
Submitted to the Clearing House
(2003-2008*, percent)
7
6.8
12
10
6.0
6
8
5.6
5.5
6
5.2
5.1
5
4
2
4
2003
2004
* January-July average
Source:CBT, ICHC
2005
2006
2007
2008*
0
1999
2000
Source:CBT
2001
2002
2003
2004
2005
2006
2007
2008
39
Inflation and Policy Rates

Developing countries that followed a tight monetary policy in 2007 were in better position
to resist inflationary pressures in 2008 as compared to countries that followed
accomodative monetary policies.
Change In Inflation Rate and Real Policy Rates In
Developing Countries
500
Thailand
400
Israel
Malaysia
Change in the Inflation
between August2007 and 300
August 2008
(basis points)
Poland
200
S. Korea
Czech Republic
100
Chile
Russia
Romania
S. Africa
Brazil
Mexico
Turkey
0
-2
0
2
4
6
8
10
Hungary
-100
Real Policy Rate in August 2007 (ex-ante)
Source: Central Banks
40