Global Crisis & Turkey (TOLGA ERDEM)

8/8/2019 Global Crisis & Turkey (TOLGA ERDEM)

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TOLGA ERDEMINTERNATIONAL FINANCE

Tiruneh Membere Workie, doc. Dr. Ing. PhD.

GLOBAL FINANCIAL CRISIS

ANDITS IMPACTS ON TURKEY

9 th December 2009


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Reasons Behind the Crisis Loose Monetary Policies :

As a result of low real interest rates in thedeveloped economies, especially in USA,

during the period 2001 2005, investors

initiated leveraged transactions and used risky

instruments in order to gain high yields.

Lack of Transparency and Supervision:

Parallel to the widespread use of originate-to-

distribute business models, financial innovation

and technolobical advancements, complex

instruments were used widely, which in turn

complicated tracing of the investments and

risk analysis of these investments.

Problems in the Housing Sector :

Decline in house prices in USA that began in

the first quarter of 2006 adversely affected

household consumption demand and brought

about increase in the mortgage foreclosure rate.

Source : OFHEO, Standard&Poors

Housing Price Index (January 2001 July 2008, annual percentage change)

OFHEO

Case&Shiller

R eal Policy R ate in USA(January 1981 September 2008, percentage)

Soruce : FED, Bureau of Labor Statistics


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Uncertainty in financial markets transformed intoa trust problem between financial institutions.

In spite of correcting actions of regulatory bodies, arisingfinancial weaknesses of large financial institutions such as LehmanBrothers, Bear Stearns, Merrill Lynch, Fannie Mae, Freddie Mac,Washington Mutual Fund and AIG !!!

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Reasons behind the Crisis


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100

150

200

2007 Q2

and Earlier

07 Q3 07 Q4 08 Q1 08 Q2 08 Q3

Global Losses

USA

Europe

As of October total losses that the international financial system has suffered reached 659billion 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 creditstandards significantly.

Losses in the Banking and Financial Sector (billion US dollars)

Source : Bloomberg

W orld

Asia


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Foreign Exchange Rates 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 Turkeys risk premium increased more than that of other developing countries. Yet, a marked correction has been observed since July 2008.

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Iceland Korunarazilian eal

ungarian orintolombian eso

South Af rican andolish Zloty

e ican esohilean eso

omanian LeySouth Korean on

Turkish Lirazech KorunaIndian upeeLatvian Lats

Lithuanian LTLussian uble

Ukraine ryvniaalaysian inggit

hillippine esoSingapore Dolar

Indonesian upeeTai an Dolar Isr alie Shekel

Source : OANDA

C hange in the Spot Foreign Exchange R ate vsUSD

(between 1 August 2008 and 16 October 2008, percent)


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Banking and Financial Sector

Capital Inflows and Current Account Deficit

Economic Activity

Exchange Rate and Inflation

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Potential Impacts on Turkish Economy:


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Until now, limited effects on banking and financialsector 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,

Tight fiscal policy and monetary policies.

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Impacts on Turkish Banking and Financial Sector


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Banking Sector Compared to earlier periods Turkish

banking sectors resilience has improvedremarkably.

The sector does not hold a noteworthy FXshort position.

Net FX positions of the banks are at a lowlevel compared to their equity capital.

N et FX Position of the Banking Sector (2000 Q1 2008 Q3*, billion USD)

* As of 19 September 2008Source : BRSA, CBT

The capital adequacy ratio is well abovethe legal limit and the EU average of 12.1%.

Banks short-term FX liquidity and totalshort-term liquidity adequacy ratios remainabove the legal limits of 80% and 100%,

respectively.Strong capital structure and high profit to

equity ratios curtail banking sectorsvulnerability to the financial turmoil.

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C apital Adequacy R atio(December 2005 July 2008, percent)

Target rate is 1 2%

Legal limit is 8 %

Operationalrisk included

Source : BRSA, CBT


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Banking Sector

11.5

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3.73.9

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2003 2007

R atio of N on-Performing L oans to Total L oans(2003 vs. 2007, percent)

* Developing countries : Argentina, Bra il, Bulgaria, C ech Republic, Croatia,Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Ukraine** Developed countries : France, Germany, Italy, United ingdom, USASource : IMF, CBT

Developed Countries**

Developing Countries*

Turkey


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Impacts on Turkish Banking and Financial Sector

Financial system in Turkey is bank dominated;

No toxic financial instruments in banks portfolio;

Shallow markets for complex financialderivatives.


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Inflation Developments in Turkey Thanks to achievements in price stability, Turkeys ranking in terms of inflation has

improved.

While in the 199 -2003 period, Turkey was among the 10 countries with highest inflationin the world, as of September declined to the 62 th position.

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* Most recent data as of September 200 8The total number of countries is 155. The ranking is in descending order.Source : IMF, TUR

STAT, CBT

InflationTargetingRegime

Inflation in Turkey (1980 2008*)

Turkey in the Global Inflation R anking (1997 2008)

*2008 forecast of the Central Bank of TurkeySource : IMF, TUR

STAT, CBT


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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 Lirawill have favorable effects on the current account deficit and an improvement in thecurrent account deficit is expected in the months to come.

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W heat Price(1 January 2007 9 October 2008, US Dollars/Bushel)

Oil Prices(NYMEX WTI, 1 January 2007 9 OCtober 2008, US Dollars)

Source : Bloomberg

Source : Chicago Board of Trade


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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 inflationrate in the short-run.

The items outside the domain of monetary policy such as food prices, food and energyprices contributed to annual inflation by 41% in 2004-2006 period, whereas their contribution rose to 63% in September 2008.

C omponents of Annual Inflation(percentage share)

*Food

:Food and Non-Alcoholic Beverages** Tobacco : Tobacco Products and Alcoholic Beverages

Source : TUR#

STAT, CBT

2004 200 6 Average September 200 8

140

Other Goods andServices

Food and Energy

3

6 2Other Goods and

Services

Food and Energy


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32.930.4

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$ icaH& 2 3 a $ 4 Mexic ) P ) la 2 5

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C umulative GDP Growth(Percentage change, 2001-2007)

Economic Growth

Source : TUR STAT, IMF World Economic Outlook


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Export Performance

Source : WTO, CBT

Turkeys Share in W orld Exports(1950 2007, percent)


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R eal Imports and R eal Exports Indices

(1982 2007, 2003 = 100)

Imports

Exports

Imports

Exports

Source :TUR STAT, CBT

Imports and Exports Growth

(January 2006 August 2008, 12-month rolling year-on-year change, in USD, percent)

Source :TUR STAT, CBT

Exports

Imports (ex-oil)


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Prospects for W orld Economy

Challenges for the world economic outlookCoupling,Further squee e in liquidity and increase in funding cost,Further deterioration of expectations and confidence ininternational markets,Slowdown in world economic growth,Unemployment,New architecture of financial markets

ConsolidationReshaping of financial institutions

Need for effective regulation and supervision,Coordination and cooperation among bothlocal and cross border authorities.


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Thanks for your attention!!!

Global Crisis & Turkey (TOLGA ERDEM)

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