Banking sector in Turkey dates back to the 19th century with the first attempts of local banks and market entries by foreign banks mainly in Istanbul. In its current state, Turkish banking and finance sector has become a highly regulated and supervised sector following the global standards and principles. Being the primary financial market in Turkey, it is closely related to other financial solutions such as factoring, wealth management and leasing and subject to the currency protection and foreign exchange regulations.
I. Regulatory Overview of the Banking and Finance Sector
Overcoming the global or local hardships and financial struggles the last century, Turkish banking and finance sector has become the driving force of national economy through the financing options provided by public or private institutions to the local companies and entrepreneurs for a variety of sectors ranging from agriculture and SMEs to project finance options in public tenders.
The very first legislative act shaping this development, Deposit Protection Law numbered 2243 has been enacted in 1933. The Deposit Protection Law can be deemed as the first banking law in the Republic of Turkey. Following this, the Banking Law numbered 2999 has been enacted. During this period, regulatory authorities started to be established and the market has grown to become more regulated over time. After several legislative changes, the Banking Law numbered 5411 has been published in the Official Gazette on November 1, 2005 replacing the former Banking Law and is still in force.
Other financial topics such as factoring, leasing and wealth management are regulated as well. Furthermore, Ministry of Treasury and Finance and the Central Bank of the Republic of Turkey (“CBRT”) monitor the capital movements. in accordance with the Law on Protection of the Value of Turkish Currency numbered 1567 and the Decree No. 32 on the Proterction of the Value of Turkish Currency.
II. Banking Law
Primarily, the principles regarding (i) operations such as “establishment, merger, disintegration, changes of shares a voluntary liquation” of the banks, (ii) banks’ internal systems, (iii) financial reporting, (iv) collection of deposits and participation funds, (v) supervision and measures to be taken, (vi) principles of development and investment banks and financial holding companies, (vii) principles regarding the Banking Regulation and Supervision of Agency (“BRSA”), (viii) provisions regarding Savings Deposit Insurance Fund (“SDIF”) and (ix) provisions pertaining to sanctions, investigations and legal proceedings against both institutions and relevant real persons been regulated under the Banking Law.
III. Banking Institutions
1. Central Bank of the Republic of Turkey (CBRT)
CBRT started to function on 3 October 1931 after the relevant regulation was legislated by Turkish Grand National Assembly. Following this, the Law on the Central Bank of the Republic of Turkey was accepted on 14 January 1970. With this, CBRT was vested with a new structure reflecting, albeit partially, the novelties in the fields of economy and central banking of the time.
The primary objective of CBRT is to achieve and maintain price stability. In order to achieve its goal, CBRT is entitled to act on its own discretion on certain matters such as capital movements and to determine monetary policy. In addition to this, CBRT also carries out open market operations, protects the value of Turkish currency, indicate currency exchange rate policies and ensures financial market’s stability.
2. Banking Regulation and Supervision of Agency (BRSA)
BRSA was founded in 1999 as a public legal entity with administrative and regulatory authorities under the annulled Banks Law numbered 4389 in line with the policies for increasing the efficiency of supervision and oversight of the banking system and establishing independent decision-making mechanisms in financial markets.
BRSA regulates and supervises banks, factoring companies, wealth management companies, leasing companies, financing companies and financial holdings and other related institutions such as audit firms, rating companies and appraisal companies, and supervises and cooperates with other institutions such as Savings Deposit Insurance Fund of Turkey ("SDIF"), Interbank Card Center and banking associations.
3. The Banks Association of Turkey (BAT)
The Banks Association of Turkey (“BAT”) was founded in 1958. It is a professional organization, which is a legal entity with the status of a public institution. Deposit banks and development and investment banks operating in Turkey are obliged to become members of this Association. The main purpose of BAT is to preserve the rights and benefits of banks, to carry on studies for the growth of the banking sector, for its robust functioning and the development of banking profession in this regard BAT set forth the principles and rules of banking.
4. Savings Deposit Insurance Funds in Turkey (SDIF)
SDIF was established on July, 1983 as a section of CBRT in order to insure the savings deposits held at banks. After the economic struggles and developments after its establishment, the authorities granted to SDIF were expanded. SDIF main duties include the insurance of savings deposits and participation funds; managing, merging, selling and liquid the banks managed by SDIF and managing the SDIF’s assets and resources.
5. Other Institutions
Other participants in the Turkish banking and finance sector include the Association of Financial Insitutions of which leasing, factoring and factories companies become a member, Participation Banks Association of Turkey which is the professional organization of participation banks and Interbank Card Center which was established by public and private Turkish banks for providing solutions for the usage of credit and debit cards in Turkey.