Q&A

OMER ARAS, Chairman of the Board of Directors of QNB Finansbank

“Long-term predictability should be prioritized in domestic and foreign policy. Continuation of policies to support our peaceful and friendly relations and avoiding tension and maintaining a peaceful environment will increase confidence in Turkey.”

HOW DO STEPS TAKEN BY TURKEY IN FOREIGN POLICY AND THE MANAGEMENT OF GEOPOLIT˹ ICAL RISK AFFECT THE ECONOMY?

Foreign policy plays a determining role for Turkey’s economy. The geography in which it is located increases its strategic importance. Turkey has recently focused on development of its military power and technology, and this has positively affected its negotiating power. But the permanent solution will be provided through peaceful negotiations. Turkey has recently showed a more positive approach to the European Union and the U.S. Thus, it has prevented possible new economic sanctions to be imposed by the parties. Continuation of these policies will enable it to take constructive steps in terms of the S-400 issue with the U.S. and the share of the Eastern Mediterranean natural gas with the EU.

Turkey needs external financing to grow its economy. We’ll reach more, cheaper and the long-term finance opportunities in the medium to long term when political risks are reduced. This will help decrease fluctuations and promote a sustainable pace of growth.

WHAT KINDS OF CHANGES SHOULD BE MADE IN THE BANKING SYSTEM TO INCREASE ACCESS TO FINANCE IN A DIGITALIZED WORLD?

Digitalization touches all companies, SMEs and almost all points on the value chain. Solutions such as human resources, Customer Relationship Management (CRM) and accounting are offered to SMEs at affordable prices. Our bank has the Digital Bridge solution easing transition to such applications, lowering the costs (even zeroing) and containing multiple solutions on the same platform. Digitalization enables banks to better identify companies with data access and right analysis. Companies, which set up their competition infrastructure, implement healthy financial management and take proper steps in digitalization will be in an advantageous position to access financing in the upcoming period.

The banking sector was already at an advanced level prior to the pandemic with opportunities and applications offered to customers such as digital channels (mobile banking and internet banking), contactless transactions (contactless payments, contactless ATM transactions), digital statements, e-signature applications and strong technological infrastructure for employees and our customers. The banking sector has adapted to changing dynamics during the COVID-19 pandemic in terms of maintaining the existing operations without interruptions. The number of digital banking users at all banks has risen by 12 million to 68 million since the beginning of the pandemic, according to the Banks Association of Turkey.

HOW DID THE TURKISH BANKING SECTOR FARE IN 2020, DURING COVID˹19?

The economy experienced many political and economic crises in the last 30 years. For instance, the 2001 crisis taught everybody how the foreign exchange (FX) position brought down banks and companies. Afterward, a strong banking sector was created with rules and tight controls. With the support of this, Turkey was able to handle the 2008 global crisis. Each country has taken various measures to overcome economic difficulties during the pandemic. The total financial support in Turkey remained limited at 1.9% of Gross Domestic Product (GDP). Turkey gave weight to liquidity supports such as the credit guarantee, asset purchases, postponement of debts of public banks and loan campaigns. The rate of liquidity supports to GDP reached 9.4% as of April, according to the International Monetary Fund (IMF). Turkey gave the highest support from this channel among developing countries in the Group of Twenty (G-20).

Alongside inflation and increases in the interest rate, liquidity supports had a substantial effect on banks’ balance sheets. Banks’ loans were increased with regulations such as asset ratio during the pandemic, when interest rates were artificially kept low. Loans, which were easily provided, increased the risk of a rise in banks’ future non-performing loan portfolio. Loans provided with low fixed interest rates in that period have created pressure on profitability today in an increasing interest rate environment. As a result, the banking sector collected loan and interest rate risks in 2020. Proper management of these risks, providing profitability again and protection of capital structures will be important for financial stability. Financial stability and the strong structure of the banking sector are two key issues in terms of sustainable growth.

WHAT KIND OF STRATEGY SHOULD TURKEY FOLLOW TO PROVIDE STEADY GROWTH AND INCREASE SOCIAL WELFARE IN THE NEW PERIOD?

Turkey is not at desired level in terms of the longterm growth rates and employment outlook. The average GDP from 2010-2015 fell from 7.4% to 3.4% in the last five years and to 2.1% in the last three years. Meanwhile, unemployment rose to 13%. This situation underlines a serious problem; but Turkey has the potential for economic growth, if the right policies are implemented.

Long-term predictability should be prioritized in domestic and foreign policy. The continuation of policies to support our peaceful and friendly relations and avoiding tension and maintaining a peaceful environment will increase confidence in Turkey. Turkey should assure that it won’t return the shortterm growth policies by prioritizing policies supporting stability in the economy. Corporate structures of important institutions such as the Central Bank and the Banking Regulation and Supervision Agency (BDDK) should be supported and strengthened. A permanent decline in inflation will increase predictability and pave the way for long-term investments. Expenditures in the medium to long term should head toward technology production and manufacturing investments for exports.