On the international stage: Local players retain a large share, but global players remain interested

It was once thought inevitable that Western multinational banking groups would come to dominate the banking sector in Turkey, as they have in many peer emerging European countries. But five years after the global financial crisis, those groups’ demands for larger acquisitions have hardly recovered, and Turkey’s banking sector is moving on.

As the banking sector grows into a regional powerhouse, ownership is stabilising. Local business groups, multinationals and the Turkish state are all planning to remain involved for the foreseeable future. While there are still opportunities for new players to enter, local owners of larger banks haven’t recently been looking to sell. Most of the new entrants are starting modestly with small acquisitions or by applying for new banking licences.

Increased Interest

Major openings have come instead when weakened multinationals have been pressured by regulators at home to raise capital. Major buying interest has come from Russia and the Gulf region, while US and European groups have retrenched.

In the only large recent deal, Russia’s Sberbank agreed in June 2012 to pay $3.53bn for 10th-largest Denizbank, which had a 3% share of Turkey’s banking market by assets, according to September 2012 figures from the Banks Association of Turkey. The seller was the distressed French-Belgian bank Dexia, which was forced to raise cash in the course of a public bailout.

Qatar National Bank (QNB) also bid for Denizbank and was reported to have looked into the possibility of buying Finans Bank, Turkey’s eighth-largest bank with a 4% market share, owned by the similarly distressed National Bank of Greece (NBG). But NBG was clinging tightly to its position in Turkey. During a European bailout of Greek banks in 2012, Greek authorities took NBG’s side and resisted pressure to force the bank to sell Finans Bank. NBG marketed a 25% stake of Finans Bank in 2010-11, but did not sell it. NBG took some pressure off itself by selling a 51% stake in Finans Bank’s life insurance and pensions unit, Finans Retirement and Life, to the US group Cigna for $104m in July 2012. QNB confirmed during a January 2013 news conference that it was interested in buying a Turkish bank, but said it had no deal in the works.

Starting Small

Other banks from the Gulf region have entered through smaller deals. In March 2013 Commercial Bank of Qatar announced it would pay $460m for control of Alternatifbank, the 17th-largest bank in Turkey with a 0.6% market share. The seller was Turkey’s Anadolu Group, which retained a 25% stake. Also, in April 2012 Kuwait’s Burgan Bank agreed to pay $355m to buy Greece’s EFG Eurobank’s Turkish arm.

In 2012 Lebanon’s largest bank, Bank Audi, launched a new Turkish bank after receiving the first new banking licence issued in Turkey since 2001. The new Turkish unit, Odeabank, said it planned to open 32 branches by the end of 2013 and 100 by 2017.

“By entering the market through licensing, rather than through an acquisition, we have an opportunity to grow organically, which was appealing to the regulators,” Hüseyin Özkaya, the CEO of Odeabank, said. Some banks are aiming at the retail banking market, looking to catch up with the 12 large banks that dominate that business. That will not be easy, as the larger banks enjoy the benefits of long experience and economies of scale.

As Zeki Önder, the executive vice-president of fieker- bank, told OBG, “In the coming years, competition will intensify in the Turkish banking sector, especially given the potential for new arrivals. Still, history shows that it can be difficult for new players to succeed in this market unless they develop a fine-grained understanding of local business conditions.”

Long Relationship

Many international banks have had a presence in Turkey since the 1980s or earlier. But multinationals did not hold a significant share of the banking market until a string of acquisitions beginning in 2002, when Italy’s Unicredit bought a 50% stake in Koçbank, then Turkey’s eighth-largest. Then in 2005 Unicredit and its Turkish partner, Koç Group, paid €1.16bn to acquire Yapı Kredi Bank, and merged Koçbank into Yapı Kredi to make Turkey’s fifth-largest bank.

In 2005 France’s BNP Paribas and Belgium’s Fortis Bank arrived in the country, with BNP paying $217m for an effective 50% stake in Türk Ekonomi Bank (TEB), then the 15th-largest bank, and Fortis paying €1bn for control of Dı flbank, then the 10th-largest bank. After BNP Paribas acquired Fortis Bank in 2010, BNP and its Turkish partner, Çolako €lu Group, agreed to merge the former into TEB, now Turkey’s ninth-largest bank.

Also in 2005, the US group General Electric paid $1.8bn to acquire effective 50% control of Garanti Bank, Turkey’s third-largest. Dexia and NBG arrived in 2006, with Dexia paying $2.44bn for control of Denizbank and NBG paying €2.3bn for Finans Bank. In 2007 Citibank paid $3.1bn for a 20% stake in Turkey’s fourth-largest bank, Akbank, and Kazakhstan’s BTA Bank bought effective 50% control of fiekerbank, the current 14th-largest bank. In 2007 the Dutch bank ING paid $2.67bn to buy 12th-largest bank, Oyak Bank, which ING rebranded under its own name.

After a pause in buying 2008-09, another big deal came in 2010, when Spain’s Banco Bilbao Vizcaya Argentaria (BBVA) paid $5.84bn for effective 50% control of Garanti Bank as General Electric exited. Prompted by US regulators, Citibank reduced its stake in Akbank down to 9.9% through a sale on the Istanbul Stock Exchange (ISE) in May 2012 that recouped $1.15bn.

Only one foreign group, HSBC, has managed to crack into the club of larger banks entirely through organic growth. Its Turkish unit has been operating since 1990 and it was ranked in 11th place as of September 2012, with a 2% market share.

Martin Spurling, the CEO of HSBC Turkey, told OBG, “Banks that succeed in relationship building, selling products with clear, transparent terms, and delivering personalised services to clients can find a competitive advantage in the Turkish market, which is dominated by many players that are focused more on big volumes. Indeed, attention to quality and integrity is an imperative for smaller players.”

Spurling also said, “The second way to gain an edge over the big fish is to focus on a specific banking niche or area of expertise.” That appeared to be Burgan Bank’s strategy, which said in a January 2013 news conference that it was attracted to Turkey by its dynamic economy and expanding trade with the Middle East and North Africa. “Trade flows between Turkey and the countries in which the Burgan Bank Group is active have increased by 55% over the last five years and reached $14.7bn in value, of which nearly all ($13.1bn worth) consists of exports,” Burgan Bank said in a news release.

Another new entrant, Bank of Tokyo-Mitsubishi UFJ (BTMU), will focus on servicing the growing number of Japanese companies operating in Turkey. BTMU, which has had a representative office in Turkey since the 1980s, was granted a banking licence in December 2012 to open the first Japanese-owned bank in Turkey in October 2013. BTMU was not planning to enter the retail market. Two other Japanese banks have signed deals as well to join with Turkish lenders.

Privatisation

Turkey’s government has no plans to give up control of state banks, which include the country’s second-largest, Ziraat Bank, with a 12% market share, and sixth- and seventh-largest Halkbank and Vakıfbank, each with 8% shares. The government uses the banks to further political goals, such as lending to small businesses in less developed areas, and helping to finance government projects such as the International Financial Centre.

Instead, the government is using share sales of state banks on the Istanbul Stock Exchange (ISE) to raise funds and boost the size of the domestic stock market. These kicked off in November 2012 with a secondary public offering (SPO) of 24% of Halkbank’s shares, which raised TL4.5bn (€1.94bn) and was the largest public offering on the ISE to date and one of the largest globally in 2012.

Among the buyers was Singapore’s sovereign wealth fund, Temasek Holdings, taking a 1.4% stake. It was Temasek’s first purchase in Turkey and followed the entry of Malaysia’s sovereign wealth fund into Turkey’s private healthcare sector in 2011.

A similar SPO of 24% of Vakıfbank’s shares was planned, which Ali Babacan, the Turkish deputy prime minister, told CNBC in March could go ahead in the second half of 2013. Vakıfbank had a market value of TL14.5bn (€6.2bn) as of March 2013, based on ISE trading of its current 25% float.

Babacan said a planned initial public offering of Ziraat Bank would likely be held in 2014, offering financial investors an opening into one of Turkey’s top five banks. The other four banks in Turkey’s top five had market capitalisations of between $13bn and $20bn as of March 2013, based on ISE trading of minority floats.

That is despite little prospect of takeover activity among Turkey’s top banks in the visible future. The only buyer recently reported to be shopping for banks in Europe that were within that price range, China Construction Bank, was looking in Western Europe, where market valuations were depressed.