Falling profits will force Turkish bank modernisation

Subject

Banks' response to limited growth and profitability from restrictions on growing their credit card businesses.

Significance

Many retail banks are reducing costs by reducing their branch networks. Turkey's high level of mobile phone usage and increasing connectivity are allowing expansion in online and telephone-banking operations. Banks are also looking to the second most profitable segment of the loan market, loans to small and medium-sized enterprises (SMEs), but Turkey's slowing economy and political uncertainties make the SME market far from straightforward.

Impacts

• As restrictions protecting credit card customers have proved very popular, the government is unlikely to remove them.
• Such international lenders as EIB will continue to play a key role in funding SME lending, given the scarcity of funding for Turkish banks.
• After July's failed coup, banks will be wary of dealing with companies thought to be connected with the alleged coup plotters.