Turkey: Slowing economy after a decade of near uninterrupted growth

Turkey’s recent history has regularly been blighted by political and social unrest. The discontent came to a head in July 2016 when a military coup was launched and failed to depose the current Turkish President, Recep Erdogan. Erdogan first came to power in 2003 and inherited a nation coming out a recession, which saw its Gross domestic product (GDP) shrink by 7.4% in real terms, inflation soar to 61%, and the Turkish Lira (TL) lose half of its value against major foreign currencies. In the following 10 years, with Erdogan at the helm the size of the Turkish economy tripled to over $900 billion USD, seeing an average year on year growth of over 5%.

One of the reforms that enabled the country to create and maintain this growth was a far-reaching restructuring of the Turkish banking system. The overhaul included the promotion of an efficient management of public resources through changing the operational structure of state-owned banks, which led to the privatisation of some of them and creating an environment that supports private investment and the growth of a dynamic private sector.

After a decade of fast growth, the Turkish economy began to slow down in 2014. Lack of business-friendly reforms, lower investment as economic and political transparency and accountability have eroded, corruption, political instability, terrorism and falling numbers of foreign visitors have created the perfect storm that halted the previously rapid economic growth.

Continued stability of the banking sector despite economic and political challenges

Despite the economic challenges and the political turbulence, the Turkish financial sector remains fairly robust. Currently, there are 49 licensed banks in the country, making it the second largest banking market, behind Russia, within emerging Europe. Currently, there are 3 state-owned banks, 28 privately-owned commercial banks, 13 development and investment banks and 5 Islamic banks. The state-owned Ziraat Bankasi is the oldest and largest bank in Turkey holding about 357.8 billion Turkish Lira (TL) (approximately $100bn USD) in assets at the end of 2016. The privately-owned IS Bankasi and Garanti Bankasi are the 2nd and 3rd largest banks in the country, each holding almost 312 billion TL in assets. The Turkish banking sector is well capitalised and underleveraged, especially compared to the Eurozone, while also being highly liquid with deposits funding 56% of all bank assets.

Underpenetrated market with a strong growth potential

Despite almost 200 years of banking history and the strong economic development since 2002 that lifted millions of Turks out of poverty, Turkey has an underbanked population compared to other upper-middle-income nations. A study conducted by the World Bank in 2014 found that 57% of the Turkish population is banked compared to 70% among upper-middle-income countries. There is also a significant financial inclusion gender gap, with 82% of men holding a financial product with a bank compared to only 33% of women. Bridging this large gender gap became a key priority during Turkey’s G20 Presidency in 2015.

Industry data demonstrates the scale of opportunity in the country’s banking sector. According to the data, total assets of the Turkish banking sector to GDP stand at 97% compared to 291% in the Eurozone; while total loans to GDP are at 57% compared to 101% in the Eurozone.

According to World Bank data, lack of trust in banks in Turkey is a key reason for not holding a formal bank account, particularly among women. Therefore, to address this issue, Turkey has begun implementing financial education programs to increase financial literacy, which the government hopes will help to change the perceptions of banks and improve trust.

Turkey also encourages closer links between the country’s SMEs and the banking sector. SMEs make up 99.9% of all businesses in Turkey, but 70% have no access to finance solutions. The Turkish government has launched a number of initiatives to help SMEs obtain suitable finance solutions. One such initiative is the Angel Investment Scheme, which is designed to provide financing and technical support for SMEs and start-ups in return for tax incentives for the investors by the Turkish Treasury.


Since the 2001 financial crisis in Turkey, the country’s economy has expanded rapidly lifting millions of Turks out of poverty, whilst its financial sector has shown a continued resilience and growth. Despite the country’s economy has slowed in the recent years due to political instability and structural challenges, the country’s underpenetrated banking market presents a major growth opportunity for the Turkish banks. Extending banking services to the unbanked population and improving access to financing for SMEs should provide solid opportunities in the years to come.

However, the current political climate in Turkey threatens to undo much of the progress made over recent years. Therefore, going forward the government and the banking sector should aim to engage with more of the large unbanked population within the country, particularly the SMEs to both kickstart the economy after slowed growth and further grow an already stable financial sector.


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