Interest rate cuts and raised reserve capital ratios enforced by the Turkish Central Bank threaten Turkish banks’ income in 2011. Hülya Altay, the deputy chief executive of Turkey’s largest listed bank by branch network, Isbank, tells Duygu Tavan about some of the challenges facing the bank in the year ahead.
At the end of January, the Central Bank of Turkey (CBT) increased the required reserve ratios for banks.
The CBT estimated the rise in reserve ratios would reduce liquidity by TRY9.8bn ($6.2bn) in the banking sector. As Turkey’s banks brace themselves for a year of low interest rates, tougher reserve ratios and limits on credit growth, Isbank’s deputy chief executive Hülya Altay told RBI that getting emotionally closer to customers is the main priority for the bank in 2011 to maintain its solid growth.
Net income at Isbank grew by 25.7% to TRY2.98bn in the 12 months to 31 December. In contrast, Akbank’s profits increased by 4.8% to TRY2.86bn, while Garanti posted full year net income of TRY3.1bn, up by 6% from the previous fiscal.
Isbank is targeting an expansion abroad, in particular the Middle East. Isbank opened a representative office in Egypt in 2010 and said that initiatives to launch a representative office in Syria were about to be completed.
The bank also plans to commence operating two branches in Iraq, one in Baghdad and one in Erbil. In addition to its targets in the Middle East, Isbank signed an agreement to purchase Russian bank Sofia in October.
Retail Banker International (RBI): What are your priorities, forecasts, challenges for 2011?
Hülya Altay (HA): Decreasing margins are one of the most important challenges which we have to cope with in 2011.
Our priority will be sustaining the profitability by growing interest yielding assets and generating more fee income without the customer experience deteriorating.
In addition, new product development and customisation of existing products based on customer needs and preferences will continue to be our strategic priorities.
Last but not least, an integrated multi-channel sales capability is one of the fields that we will use to diversify our distribution network and increase our sales capacity.
On the other hand, regulations, especially the increased level of required reserve ratios and the minimum monthly payments to be made by cardholders of up to 40% of credit limit, will have a significant impact on the banking industry and can be considered as a challenge.
RBI: What is going to be your focus in retail banking in Turkey in 2011?
HA: In today’s tough economic conditions, competition has become much harder. In an environment where the sustainable competitive advantage shifts from a wide range of products and distribution network to relationship-oriented service provision, being not only geographically, but also emotionally the closest bank to our customers and prospects, is the main strategy of Isbank.
As the competition becomes fiercer, fostering relationships with customers becomes vital as well.
For this reason, we will focus more on customer penetration and deepening our relationship with our customers. This will hopefully result in increasing cross-sell ratios and share of wallet for Isbank.
Since the margins are eroding, we will focus on keeping our profitability by creating additional sales volume and target increases in fee income.
We will leverage on our customer base, develop new value added products and services for them, improve their experience with Isbank and diversify our distribution network.
RBI: Which product of Isbank has been the biggest hit in the past 12 months, what do you think will be the most successful product of 2011?
HA: For Isbank, the biggest hit of 2010 was mortgages. We leveraged on our branch network, huge customer base and experienced sales force to realise the potential of Isbank in the mortgage business. As a result, we were able to significantly increase our market share.
In 2011, besides mortgages and other conventional products, we think that general purpose loans will get the highest attention from our customers.
RBI: What are the challenges you are facing in the next three to five years, in Turkey as well as your other markets?
HA: Margins are expected to decrease further in upcoming years. This will certainly have an impact on competition. Moreover, new entrants, such as mobile phone operators and consumer finance companies, may increase their level of involvement in the retail banking industry, which will possibly result in more competition.