YeditepeUniversity 10.05.2007
Instructor: Mehmet Nuri Önortaç
Course: Money & Capital Markets
Semester: Spring 2007
Students: Emre Er
Özlem Emekli
Project
Turkish Non-Bank Finance
Outline
1. Introduction
2. Composition of financial sector after the crisis of 2001
3. Private Financial Institutions
3.1 Asset composition of the private financial institutions
3.2 Liability composition of the private financial institutions
4. Leasing
4.1Asset composition of leasing
4.2 Liability composition of leasing
5. Factoring
6. Conclusion
7. References
1. Introduction
Today, although banks are dominant in the financial sector, non-bank institutions have been growing as well. These institutions fulfill very spesific tasks, in which banks do not have a lot of experience. But in the recent years, by the trend of diversification, banks have also expanded their services to the field of non-bank financial institutions.
In Turkey, non-bank financial institutions are private financial institutions, insurance companies, leasing companies, factoring companies, consumer finance intitutions, and stockbrokers as shown in the Table 1. This paper will evaluate only private financial institutions, leasing companies, factoring companies among them. The major evaluation topics will be the roles, sizes, and composition of assets and liabilities of these institutions in the financial sector. So the reader will have an idea about the future trend in this part of the financial sector. All the evaluations will depend on the numerical and graphical data which will maintain the objectivity and the reliability of the paper.
Among the tables, the first one has a vital importance. This table covers the detailed data of the components of the financial sector in 2002 and 2003 just after the economic crisis of 2001. Later on, when each component is evaluated, the numbers will be mostly from 2005 and 2006. So, by means of Table 1 the trend of the financial sector after the crisis could be analyzed.
2. Composition of financial sector after the crisis of 2001
When we compare non-bank financial sector and banks, we conclude that banks are dominant players in terms of their equity size and asset size. But, at the same time we observe that the number of non-bank financial institutions are much more greater than the number of banks due to the difficulties of establishing banks and the importance of economies of scale in the banks.
Table 1: Active Institutions in Turkish Financial Sector
2002 / 2003 JuneNumber of financial institutions / 387 / 372
Banks / 54 / 52
Non-bank financial institutions / 333 / 320
Private financial institutions / 5 / 5
Insurance companies / 58 / 58
Leasing companies / 36 / 36
Factoring companies / 110 / 97
Consumer fiancial ınstitutions / 5 / 5
Stockbrokers / 119 / 119
Employee numbers in financial institutions / 145.859 / 144.540
Banks / 123.271 / 121.888
Non-bank financial institutions / 22.588 / 22.652
Private financial institutions / 2.530 / 3.207
Insurance companies / 10.538 / 10.538
Leasing companies / 862 / 845
Factoring companies / 1.745 / 1.530
Consumer fiancial ınstitutions / 277 / 277
Stockbrokers / 6.636 / 6.255
Total owners equity of financial institutions(billion TL) / 29.134 / 34.327
Banks / 25.695 / 30.147
Non-bank financial institutions / 3.439 / 4.180
Private financial institutions / 380 / 488
Insurance companies / 1.167 / 1.496
Leasing companies / 710 / 787
Factoring companies / 430 / 588
Consumer fiancial ınstitutions / 37 / 43
Stockbrokers / 715 / 778
Total assets of financial institutions (billion TL) / 228.616 / 229.361
Banks / 212.675 / 211.661
Non-bank financial institutions / 15.941 / 17.700
Private financial institutions / 3.840 / 4.027
Insurance companies / 5.434 / 6.263
Leasing companies / 3.165 / 3.455
Factoring companies / 2.091 / 2.431
Consumer fiancial ınstitutions / 414 / 470
Stockbrokers / 997 / 1.054
Assets range of financial institutions (%) / 100,0 / 100,0
Banks / 93,0 / 92,3
Non-bank financial institutions / 7,0 / 7,7
Private financial institutions / 1,7 / 1,8
Insurance companies / 2,4 / 2,7
Leasing companies / 1,4 / 1,5
Factoring companies / 0,9 / 1,1
Consumer fiancial ınstitutions / 0,2 / 0,2
Stockbrokers / 0,4 / 0,5
Assets of financial institutions (GDP %) / 82,8 / 73,8
Banks / 77,1 / 68,1
Non-bank financial institutions / 5,8 / 5,7
Private financial institutions / 1,4 / 1,3
Insurance companies / 2,0 / 2,0
Leasing companies / 1,1 / 1,1
Factoring companies / 0,8 / 0,8
Consumer fiancial ınstitutions / 0,1 / 0,2
Stockbrokers / 0,4 / 0,3
Source:
Among the non-bank financial institutions, insurance companies have the largest assets. But factoring, leasing and private financial institutions have also considerable parts in the composition of assets. But from the employment perspective, insurance companies possess almost half of the employment opportunities in the non-bank financial sector. Stockbrokers can be considered as a large number in the sum of non-financial sector with nearly 6000 employees.
Graph 1: Number of employees in the non-bank financial sector in 2003
Source:
Graph 2: Assets of non-bank financial institutions in 2003
Billion TL
Source:
3. Private Financial Institutions
Private financial institutions collect deposits by the current accounts and share of profit or loss. It is allowed to establish private financial institutions since 1984. In 2004, these institutions have been attached to the banking law by the code 4491 but they have not been transformed to the banks. PFIs prepare their accounting reports like the banks as a result of the law. The supervision of the PFIs is made by theBanking Regulation and Supervision Agency (BDDK)(TCMB Finansal İstikrar Raporu. August 2005. No-1, p. 57).
There are 4 private financial institutions institutions in Turkey. They grow in a very good trend. When we compare todays’ numbers with the numbers of 2002, we observe that the number of the emloyeesof the private financial institutions has increased from 2530to 6630. Also the total assets of the private financial institutions have increased from
3.840 billion TL (2002) to 12.7 billion TL (2006)(BDDK, p. 68).
Graph 3: Number of employees in the private financial institutions
Source: TCMB Finansal İstikrar Raporu. August 2005. No-1, p. 59.
Private financial institutions grow in Turkey faster than the banks.Except private financial institutions, banking sector grew %16.1 in the first 9 months of 2006, while growth rate of the private financial institutions was %28.3(BDDK, p. 69).
Financial requirement rate in private financial institutions are in the level of %14.8 which is a good number. In the last three quarters of 2006, it was in the trend of increasing.
3.1 Asset composition of private financial institutions
As it is seen in the graph 1, credits have been the biggest portion of assets with nearly %70 in the following years. Leasing receivables and stable assets have decreased continuously. In the credits portion, the biggest items are business credits with %32.6 and consumer credits with % 16.1. The transformation of resources to the credits in private financial institutions is higher than in the banks. %89.5 of the resources in the private financial institutions are allocated to the credits, while this percentage is only %67.9 in the banking sector. Total assets have increased from 3.840 billion TL to 9.3 billion TL.
Graph 4: Asset composition ofprivate financial institutions
1) Credits 2) Receivables from Banks 3) Stable Assets4) Others 5) Leasing Receivables
Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 89
Graph 5: Some balance sheet items in private financial institutions
Billion TL
Source: TCMB Finansal İstikrar Raporu. August 2005. No-1, p. 59.
3.2 Liability composition of private financial institutions
The biggest percentage of the liabilites of private financial institutions have been total funds. They increased after the financial crisis in Turkey constantly from the level of 3 billion TL to 7 billion. At the same time, owners’ equity has increased continuously.
Most of the funds are created by the debts. The portion of the current accounts and community of the profit and loss is %80 among the debts. Although the percentage of debts to banks is small, it has increased %100 beginning from the end of 2005.
The rate of owners equity to the total liabilities is 13.5% in the private financial institutions, while this percentage is 12.2% in the banking sector.
Graph 6: Liability composition of private financial institutions
Percentage %
Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 7
4. Leasing
Leasing institutions own the commodity which its customer needs. They give the right of usage to their customers in return of a rent for a certain period of time. This method strengthens the liquidity of the companies. Businesses do not have to pay large sums for their investment plans (TCMB Finansal İstikrar Raporu, 2005, p. 88).
When we compare the data in table when table to, we observe that the number of leasing institutions were 36 in 2002 and today it is 83. Employment opportunities in this field has also developed. While 862 employees worked in 2002, this amount has been 1285 in 2006.
Table 2: Leasing institutions
Strucrural index 2005 mar.06 july 06 sept.06Number of corporation 84 83 83 83
Number of branch 5 5 5 5Number of employee 1.146 1.194 1.273 1.285
H:H index(for first 5 corp.) 688 583 541 495Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 76
4.1 Asset composition of leasing
The portion of the leasing receivables is the biggest one in leasing institutions with %83-%85 in large companies and %60 in smaller ones (BDDK, p. 77). From 2000 to 2006, liquidity of the leasing institions has continuosly decreased.
The average maturity of the credits is 1141 days and average maturity of the debts is 466 days. On the other side, the percentage of credits is %82 and the percentage of debts is %76 which means that leasing institutions are not adequate to prevent the insuitability of debt and term (BDDK, p. 99).
Commercial undertakings are dominant in receivables with %71 while individual undertakings have %23.
Graph 7: Asset composition of leasing
Percentage %
Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 77
4.2 Liability composition of leasing
As it is seen in the graphs, the percentage of owners’ equity has been %20 by decreasing in the following years, while the portion of debts have continuously increased when the companies have cured themselves after the economic crisis of 2001. It shows that leasing companies trust to the good economic trend. Accordingly they take more risk by taking more debts and giving more credits(BDDK, 2006, p. 78).
Graph 8: Liability composition of leasing
Percentage %
Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 79
As it is seen in the graph, the sum of liabilities has increased from 2.8 billion TL to 9.5 billion TL after the crisis. The year 2003 has been the turning point in the percentages of debts/ sum of passives, since the firms have recovered beginning from that date. Overall economy has been well and the risk perception of the financial institutions could be turned to positive only 2 year after the crisis (BDDK, 2006, p. 100).
Graph 9: Debt & Owners equity ratio of the financial leasing corporations
Billion TL%
PassivesShareholders’ Equity/ Sum of Passives Debts/ Sum of Passive
Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 80
5. Factoring
Factoring institutions are employed when the company has a problem in liquidating its credits from debtors. These institutions undetake those debts by paying a certain amount. Most of the time, this method is used when the company needs liquid(TCMB Finansal İstikrar Raporu, 2005, p. 88).
Number of the factoring sector has gone down from 110 in 2002 to 87 in 2006. But this situation has not been same in the employment number. While in 2002 1745 employees have been employed in the sector, this number has increased to 2323 in 2006.
Table 3: Structural size of factoring sector
2005 mar.06 july 06 sept.06Number of corporation 88 88 87 87
Number of branch 0 0 0 0Number of employee 2.053 2.164 2.247 2.323
H:H index(for first 5 corp.) 302 310 299 320Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 82
As it is expressed in the definition of factoring institutions, naturally the biggest portion in the balance sheet is the portion of receivables. The stability of the sector can be observed in terms of receivables as well. Only during the crisis the percentage of receivables decreased to the level of %60 since the liqudity became very important at that time. But after the percentage of receivables have been around %80 percent.
Graph 10: Overall balance sheet of factoring companies
Percentage %
Source: Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. September 2006. No 3. p. 83
6. Conclusion
Non-bank financial institutions in Turkey are in the trend of growing. The growth rate are mostly higher than in the banking sector. The mile stone of the history of the financial sector is 2001. In this paper the period after the crisis is anayzed. After that date, non-bank financial institutions recovered and they took more and more risk. The percentage of debts and credits increased continuously.
7. References
TCMB Finansal İstikrar Raporu. August 2005. No-1.
TCMB Finansal İstikrar Raporu-Haziran 2006, Sayı 2
Bankacılık Düzenleme ve Denetleme Kurumu, Finansal Piyasalar Raporu. Eylül 2006. Sayı 3.
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