MENU
MENU
Household indebtedness in Türkiye, which is significantly lower than in peer countries, has been declining since the second half of 2020. In 2022, the household financial leverage ratio continued to decrease as household financial assets grew faster than liabilities. The rise in household financial liabilities was mainly driven by general-purpose loans and personal credit cards. In 2022, 82% of the increase in total retail loan balances came from general-purpose loans and personal credit cards. Meanwhile, indicators regarding the debt repayment performance of households are strengthened by the fact that household indebtedness mostly belongs to fixed-income employees.
As a consequence of the CBRT’s Liraization Strategy, the share of the Turkish lira in households’ financial asset composition has been increasing. Supported by practices encouraging the conversion of household assets into TRY deposits, real residents’ share of TRY savings deposits in total savings deposit rose to 53%, while alternative products and the dynamics in domestic capital markets favoring the Turkish lira have reduced FX savings deposits. Households’ increased interest in non-deposit financial assets is considered as a favorable development with respect to financial inclusion.
In 2022, corporate sector firms continued to borrow mainly in TRY and reduced their FX loans. The TRY loans used by the corporate sector from the banking sector grew by 94% in 2022. FX loans, on the other hand, remain negative due to the restrictive macroprudential regulation linking FX indebtedness to FX income as well as firms’ increased awareness of FX risk management, and favorable TRY financing conditions.
The long-standing improvement in the corporate sector’s net FX position continued in 2022 as well. The open position, which marked the highest level at the end of March 2018, has decreased by USD 108.8 billion and came down to USD 86.9 billion in November 2022. The total FX financial debt of corporate sector firms, which was USD 217 billion, was composed of domestic FX loans of USD 113.6 billion and external FX loans of USD 103.5 billion.
The corporate sector’s short-term net FX position posted a long position of USD 69.6 billion in November 2022. A long position in firms’ short-term net FX position indicates that firms have sufficient liquid FX resources and are resilient to possible exchange rate shocks. Corporate sector external debt rollover ratios have been on an uptrend since the third quarter of 2020. This ratio hovered above 200% in a six-month window throughout 2022, indicating that firms’ access to external financing continues despite global external shocks. Corporate sector firms’ financial debt-to-GDP ratio, which stood at 67% in second quarter of 2022, remains significantly below the EME and world average of 109.9%.
In 2022, the macroprudential policy set was strengthened to ensure that commercial loans feed into economic activity in line with intended purposes and to support the effectiveness of the monetary transmission mechanism. As of the second quarter of 2022, following the macroprudential measures introduced for both commercial and retail loans, the loan composition changed in the targeted direction and the acceleration in total loan growth rates slowed down. In this period, the expected effects of macroprudential policies targeting export, investment and SME loans started to be observed. Compared to 2021, the share of SMEs in TRY loans increased from 47% to 50% in 2022, and the share of export and investment loans rose from 10% to 18%, while loan growth outside targeted areas slowed down. Moreover, TRY commercial loan rates declined across the board, and TRY loan rates moved into a range more consistent with the policy rate. Meanwhile, retail loan growth remained moderate in June on the back of the tightening measures regarding the loan-to-value ratio of housing loans and general purpose loan maturities. The share of retail loans in the banking sector’s TRY loan volume decreased from 34.8% at the end of 2021 to 29.7% at the end of 2022.
The banking sector’s Non-Performing Loans (NPL) ratio declined from 3.2% at end-2021 to 2.1% at end-2022. The buoyant economic activity and favorable financing conditions, which strengthened the cash flows of households and firms, supported the favorable outlook in loan repayment performances. With the decline in loan growth and the rate of transition from standard loans to Stage 2 loans, the ratio of Stage 2 loans to gross loans decreased to 8.5% in December 2022 from 11.1% at end-2021. Banks continued their prudent loan provisioning policies that they started during the pandemic. The ratios of provisions earmarked for Stage 2 loans and NPLs were 24.8% and 86.7%, respectively, in December 2022.
The banking sector’s strong liquidity buffers continue to support the sector’s funding and liquidity outlook. Throughout 2022, banks’ FX liquidity was supported by the weak FX loan appetite and corporate sector firms’ reduction of their FX loans. In addition to this development, the decline in banks’ external debt increases banks’ resilience against liquidity-driven shocks. Total and FX liquidity coverage ratios hover well above legal limits. TRY deposit accounts maintained their uptrend throughout the year, while the TRY loan/deposit ratio was down from 154% to 103%. The KKM (FX-protected accounts) practice and macroprudential measures taken to increase the share of TRY deposits contributed significantly to the liraization of bank balance sheets and supported reverse currency substitution. In 2022, FX deposits declined by USD 41 billion, while the TRY share in total deposits, which was below 35% at the beginning of the year, exceeded 50%.
The banking sector’s external debt rollover was mainly driven by the tightening in global financial conditions, heightened geopolitical risks and the sector’s high FX liquidity level, accompanied by the real sector’s weak FX loan demand. Throughout 2022, the banking sector’s external debt rollover ratio was around 90%.
The banking sector displayed a strong profitability performance throughout 2022. The sector’s cumulative net profit, which was TRY 93 billion in 2021, increased almost fivefold to TRY 434 billion in 2022. The improvement in the banking sector’s profitability performance was driven by the high loan/deposit interest spread, return on the Consumer Price Index (CPI)-indexed securities and the volume from loan growth. On the other hand, the increase in general and special provisioning expenses, which are kept as a precautionary measure, slightly limited the strong profitability growth. The return on equity, which was 14.5% at the end of 2021, rose to 40.5% in December 2022 and the sector’s profitability continued to support capital.
The capital adequacy outlook for the banking sector remained strong, and capital adequacy ratios of the sector remained above the statutory minimums. The measures taken by the Banking Regulation and Supervision Agency (BRSA) to limit the negative effects of the pandemic on bank balance sheets continued in 2022. With the contribution of the measures taken and the sector’s strong profitability performance, the banking sector’s Capital Adequacy Ratio (CAR) increased from 18.4% at the end of 2021 to 19.5% at the end of 2022.
The CBRT took part in international financial platforms carrying out activities contributing to financial stability. Thanks to the improvement in pandemic conditions, meetings were mostly held in hybrid format. Accordingly, the CBRT pursued senior level active participation at the Plenary meeting as well as in standing committee meetings of the Financial Stability Board (FSB), which aims to enhance global financial stability by coordinating the work of national financial authorities and international standard-setting bodies. The CBRT also contributed to the meetings of technical subgroups of the FSB as a member.
The CBRT is the current co-chair of the FSB’s Regional Consultative Group for Middle East and North Africa (MENA). At the Groups’ meeting held on 14 June 2022, the latest developments regarding the FSB’s work program for 2022, global and regional macroeconomic developments, financial market developments and their effects on the regional economy, and regulation and supervision of crypto assets were discussed. The Group held a meeting on 12 December 2022 as well at which the FSB’s work program for 2023, vulnerabilities, regional macroeconomic developments, financial market developments, financial stability issues, and the work of the regional countries and the FSB on cross-border payments were discussed.
The Basel Committee on Banking Supervision (BCBS) is entrusted with the task of setting general standards applicable to bank supervision, providing guidance to the member jurisdictions, and establishing new international standards particularly regarding capital and liquidity frameworks. The CBRT attended the BCBS meetings at the senior level, and participated in and contributed to various BCBS working subgroup meetings at a technical level.
The joint IMF-World Bank Financial Sector Assessment Program (FSAP), which provides an in-depth analysis of a country’s financial sector, was carried out for Türkiye in 2007, 2012 and 2016 and the FSAP for 2021 started with online scoping mission meetings between 20 September and 1 October 2021. The FSAP delegation held virtual meetings with relevant public institutions and organizations, including the CBRT, and private sector representatives. The First Mission meetings (online), which started in January 2022, ended with a closing meeting on 8 March 2022. The Main Mission meetings were held online and physically between 15 June and 5 July 2022.
In 2022, the work of international financial institutions focused on identifying and assessing the new risks to global financial stability posed by the Russia-Ukraine conflict, enhancing the resilience of the non-bank financial intermediation sector while preserving its benefits, improving cross-border payments, addressing the risks and benefits of digital innovation - particularly in the context of crypto assets - and examining financial risks arising from climate change. The CBRT has effectively cooperated with relevant authorities in Türkiye in order to provide maximum contribution to these efforts.
The name of the Participation Banking Division, which was established under the Banking and Financial Institutions Department in 2021 to coordinate work regarding participation banking and conduct analysis on the sector’s risks, was changed to the Participation Finance Division in 2022.
In 2022, various studies were carried out in cooperation with relevant units within the CBRT in line with the suggestions made by participation banks and in response to emerging needs. The regulatory work on supporting the conversion of FX and gold accounts into TRY deposits and participation accounts was adapted to cover the principles of participation banking and participation finance. The CBRT carried out technical and legal studies in line with requests submitted to the CBRT by participation banks regarding rediscount credits and reserve requirements. The necessary regulatory infrastructure was prepared for opening of YUVAM accounts at participation banks.
The CBRT contributed to the Participation Finance Strategy Document drawn up by the Finance Office of the Presidency of the Republic of Türkiye, the Draft Law on Participation Finance and similar studies. In the Participation Finance Strategy Document published in October 2022, the CBRT is listed as the responsible institution for increasing liquidity facilities for participation finance, preparing proposals for relevant legislative amendments in other laws and preparation of the secondary legislation.
The CBRT followed international conventions of the International Islamic Liquidity Management Corporation (IILM) as a shareholder as well as the Islamic Financial Services Board (IFSB) as a member and monitored developments, contributed to regulatory activities, made recommendations and supported reporting activities thereof. Accordingly, the CBRT participated in meetings of IILM’s managerial and administrative organs such as the Risk Management Committee, Audit Committee, Executive Committee, Governing Board and the General Assembly. As a shareholder of the IILM, the CBRT takes active part in the decision-making processes. After his term of Deputy Chairman of the Governing Board in 2022, Governor Şahap Kavcıoğlu will become the Chairman of the Governing Board in 2023, and therefore necessary preparations have been carried out.
The CBRT is a full member of the IFSB and actively participated in the meetings of the Council, the highest decision-making body of the IFSB, as well as Technical Committee meetings and meetings of other sub-working groups throughout the year and expressed its views on the issues discussed. The CBRT participated in the 17th and 18th meetings of the Financial Cooperation Working Group, one of the COMCEC working groups on “Standardization Efforts in Islamic Finance” and contributed to the research report prepared.
In line with the CBRT’s aim to improve its bilateral relations, the CBRT responded to training requests from abroad in the field of participation finance. In this context, a training program was organized for the Central Bank of Bangladesh on “Islamic Banking and Shariah-Based Financing under the Flagship of Sustainable Financing and Sustainability Issues” in May and another one was organized for the Central Bank of Kyrgyzstan on “Risk Management in Islamic Banking in the Fintech Era” in August.
