4 July 2014

Business Forum Turkey highlights the country’s potential as a financial centre

The inaugural SWIFT Business Forum Turkey attracted more than 150 participants and brought together policy makers, senior bankers and academics to discuss Turkey on the Global Stage. A day of lively discussion highlighted the immense opportunities present in Turkey in terms of natural geopolitical advantage and economic potential and resilience, as well as the challenges facing the country as it moves to achieve its ambitions.

Keynote speaker Murat Çetinkaya, Deputy Governor of the Central Bank of Turkey, stressed that Turkey’s goal to establish Istanbul as a regional and later a global financial centre is very achievable. “The time is right for this project; Turkey is in a good position,” he said.

Mr Çetinkaya noted that in a period when the impact of the global financial crisis is still being felt, Turkey’s policy framework has enabled the economy to perform well, working in line with the G20’s reform agenda and regulation of global financial market infrastructure towards the prevention of systemic risk.

He said that the country was working on several fronts to maintain Turkey’s economic resilience. Projects included work towards development of OTC derivatives markets to reduce third-party risks and protect the market participants, while he highlighted the role of CPSS-Iosco guidelines in ensuring financial market stability. He also noted that in a “period of asset re-pricing, which has not been an easy process for Turkey”, policies had been adopted which meant Turkey had “positively decoupled itself from other countries”.

Role of Financial Market Infrastructure

Saying that 232 million payment transactions were processed in 2013 in Turkey, Mr Çetinkaya stressed the importance of payment systems in the smooth running of the economy and the role they play in preventing risk. “Increasing the sophistication of payment systems and other financial infrastructure is important for financial stability. Payment systems in particular are one of the critical components of financial stability, especially in times of stress, when strong financial infrastructure become even more significant; every problem then has the potential to lead to systemic risk. This makes SWIFT a critical service provider.”

In his welcome address, Javier Pérez-Tasso, Chief Marketing Officer, SWIFT, also highlighted Turkey’s importance on the regional and global stage. “Turkey is in an ideal geopolitical position, at the cross roads of east and west and serving as a bridge between European, Middle East and Asian cultures. This makes Turkey’s ambition to establish Istanbul as an IFC both logical and feasible,” said Mr Pérez-Tasso.

He also noted that SWIFT data supported Turkey’s ambition to be in the top 10 economies by 2023. “Despite the financial crisis, the volume of Turkey’s SWIFT traffic has doubled over the five past years, driven by payments growth. That is growth of 20% year-on-year. Because we know SWIFT data is positively correlated with economic growth, this illustrates Turkey’s strong growth trajectory and supports Turkey’s goal to be a regional payments hub.”

Mr Pérez-Tasso added that a robust financial infrastructure plays a central role in any market and is crucial to attracting foreign investors and creating liquidity. SWIFT can be a strategic partner in achieving these aims.

"A robust, scalable and secure financial market infrastructure that is in line with international guidelines like CPSS-Iosco is a critical component of any financial centre. Historically, SWIFT has played an integral role in Turkey’s financial sector, and we want to be a part of Turkey's continuing journey going forward.”

Istanbul as an IFC

The volume of Turkey’s SWIFT traffic has doubled over the five past years, driven by payments growth. That is growth of 20% year-on-year…this illustrates Turkey’s strong growth trajectory and supports Turkey’s goal to be a regional payments hub.

— Javier Pérez-Tasso, Chief Marketing Officer, SWIFT

The opening plenary session, which looked at Istanbul as an IFC in greater detail, featured Mr Pérez-Tasso who was joined on stage by Dr. Yakup Ergincan, CEO and Board Member of Turkey’s Central Registry Agency, MKK and Özgür Demirtaş, Professor of Finance at Sabancı University. It was moderated by Christian Sarafidis, Head of Western Europe, Middle East and Africa, SWIFT. Adherence with international guidelines and the need for robust market infrastructure remained important topics.

Dr. Ergincan stressed that a strong central counterparty and central securities depositories (CSDs) are crucial to becoming an IFC and agreed that Turkey needs to comply with industry best practice in order to attract more issuers and investors, and to build liquidity. “Sixty-four percent of listed shares in Turkey are owned by foreign companies so the market is already quite attractive, however, there is lack of domestic issuers and investors. Our goal is to reach 1000 issuers by 2023 and to increase the investor base from 3.5 million today to 7.5 million. We also need to create links and synergies with other countries and market infrastructure in order to increase liquidity in the market.”

He also highlighted the importance of key partnerships, saying that, earlier this year, MKK became a member of Africa and Middle East Depositories Association and signed a Memorandum of Understanding with South Africa's Central Securities Depository, STRATE, to help develop Turkey’s capital markets. Similarly, he said, Borsa Istanbul is partnering with Nasdaq OMX.

Dr. Ergincan also said that innovation is ever more important as CSDs become a commoditised business. “MKK manages 43 million accounts for 23 million investors and we are always looking for opportunities to develop new products that increase value for customers.” As an example, he noted that MKK created the Electronic General Meeting System (e-GEM), a platform to provide bilingual, real time online e-voting and e-proxy platform. For the first time, issuers, beneficial owners and proxy holders can manage the whole general meeting process remotely and securely. “MKK is currently working with Nasdaq OMX to commercialise the product in 25 other countries,” he said.

Geopolitical advantage

Özgür Demirtaş, Professor of Finance, Sabanci University, agreed that Turkey’s advantages in terms of geopolitical position and its economic growth over the last few years put the country in a strong position. He believes that Turkey can easily compete with other centres in the near region, including Moscow and Dubai. “For example, Russia’s economy is heavily focused on energy, versus Turkey’s diverse economy, which offers us greater opportunities to grow as well as giving us greater resilience to survive downtimes. Dubai has a lot of strengths, not least in its advantageous tax regime, but its expertise is largely imported, whilst ours is homegrown. This is a significant strength for Turkey.”

However, he was keen to point out that the country also has some serious challenges to overcome. “We lack enough people with the right skill sets,” said Mr Demirtaş. “In order to achieve the top 10 economic position we have targeted, we need to differentiate ourselves from competitors. We cannot rely only on organic growth; we need to create a competitive edge. For this, we need more good business schools. If you look at the current IFCs of London and New York, one of the attributes they share is first class business schools that help to foster entrepreneurialism and create a breeding ground for business ideas. We need to create, not copy-enhance-paste.”

In the panel looking at the payments side of the IFC discussion ‘Istanbul as a Financial Center: Building Tomorrow's Payments Hub’ there was a detailed evaluation of the ways in which the infrastructure could be developed. The panel featured İbrahim Erkmen, Senior Manager, Payments & Cash Management, HSBC, Erhan Toraman, Vice President, Financial Markets Operations Group, ING Bank, and Elçin Mustafa Güven, Business Development Vice President, Garanti Bank.

Payments system critical

Payment systems in particular are one of the critical components of financial stability, especially in times of stress, when strong financial infrastructure become even more significant; every problem then has the potential to lead to systemic risk. This makes SWIFT a critical service provider.

— Murat Çetinkaya, Deputy Governor of the Central Bank of Turkey

A core component of Turkey’s plans for Istanbul as an international financial centre will be the development of a state-of-the-art payments infrastructure to support economic growth in Turkey and the region. Dr. Rıza Kadılar, Senior Country Manager and Representative for Turkey, Natixis, who moderated the session, said an efficient and secure system that adheres to international guidelines, such as CPSS-Iosco from the Bank for International Settlements, will offer a competitive advantage to the country, but he asked, what are the challenges involved in developing a system?

Mr Güven said that changes in the payments area accelerated after the financial crisis began in 2008, including in the centralization of treasury and cash management operations into regional hubs – notably in the Philippines, Ireland and the Czech Republic. This trend is supported by regional harmonization developments such as the Single European Payment Area (SEPA) – but this is the kind of initiative that Turkey is missing, he added.

“[SEPA] offers truly regional services and many of our clients want to benefit from this kind of standardization,” said Mr Güven. This is what Turkey lacks. We don’t have common regional standards or even agreed communications standards between banks or customers. This is something we need to address.”

HSBC’s Mr Erkmen agreed that standardization was crucial to help the industry move forward and to develop. “But standards should not be proprietary to Turkey; they should be in line with international standards,” he stressed.

Mr Toraman added that banks needed to drive improvement. “We have to look to ourselves. There is good penetration but we need to enhance services to our corporate clients and better support fast retail payments.”

Growing securities markets

The session on ‘The Evolution of the Turkish Securities Market’ was also moderated by Dr. Kadılar and featured a panel made up of Mustafa Baltacı, Senior Adviser to Borsa İstanbul, Türkü Karan, Head of Product Strategy, TEB Securities Services, Tuncay Yıldırım, Director of Operations, Takasbank, and Dr. Orcan Çörtük, Vice President at MKK. This session examined the impact so far of the revamping of Turkey's capital markets on the country's securities markets; additionally, it discussed the role that market infrastructures play in supporting these goals.

All the panellists agreed that securities markets and stock exchanges in particular are economic growth ‘enablers’ and are an essential element of a strong IFC. As such, the new Capital Markets Law aimed to make the securities markets more efficient and more attractive to foreign investors. Several speakers stressed the need to attract more foreign capital to the Turkish market.

In this respect, Mustafa Baltacı, Senior Advisor, Borsa İstanbul, argued that, despite the positive steps taken so far, Turkey’s securities markets are lagging behind other markets in the European Union and beyond. “Investors and issuers need infrastructures where investors can feel at ease; we should look at the integrated infrastructures in US and EU and adopt similar models.”

Mr Baltaci also highlighted the need for greater financial product diversification in Turkey, in order to generate more liquidity in the financial markets. This point was picked up someone in the audience, who said that diversification is good, but asked the panel what needed to be done to ensure could Turkish products perform better, citing the example of pension fund returns being eaten away by inflation. The panel were unanimous: Turkey needs more sophisticated and innovative products that will help investors to outperform, and the industry needs to create a favourable environment for hedge funds and other investors that create liquidity in order to attract them to the Turkish securities markets.

The recent change in the Commercial Law makes Turkey a better place for foreign institutional investors as it removes barriers linked with tax regulation and liability, said TEB’s Ms Karan. “Still, more effort is needed to ‘enlarge the cake’ for all investors and this means further development of the corporate bond and derivative markets.” She also pointed out that while it is sensible to attract more foreign investors, it is just as important to build Turkey’s investment community. “We have to maintain a dynamic domestic market,” added Ms Karan.

Building on discussion about the need for more innovation and greater product diversity, MKK’s Dr. Çörtük, emphasised the need for better price discovery mechanisms and new products to manage risk. “We must to integrate agricultural products such as cotton into the financial markets because Turkish businesses, including farmers, need the capability to manage risk.” To this end, Dr Çörtük said that soon bonds will be introduced which can be sold or used as a warranty. “The farm board is currently thinking about unblocking these bonds for other products,” he added.

Tuncay Yıldıran, Director of Operations, Takasbank, agreed that there needs to be a greater focus on the use of securities markets to manage risk. “Securities markets provide two key functions; of course, they provide funding for corporates and investment opportunities for investors, but markets also serve as a risk transfer mechanism. Turkey does not do enough about this risk element. We need to talk about OTC derivatives otherwise it is like a table with one leg missing. We cannot develop as a financial centre without this.”

Corporate-bank relationship drivers

The session on ‘Corporate Banking Today and Tomorrow’ was moderated by Ömer Gürcan Köseoglu, Assistant General Manager, Sales, Yapı Kredi Moscow. The panelists included Onur Ozan, Country Manager, Turkey, SWIFT, Mehtap Yılmaz, Corporate Sales and Marketing Vice President, Akbank, Sinem Macunlar, Treasury Manager, Ravago, and Müge Artuk, Budget and Finance Manager, Toyota.

The session looked at technology’s reducing role as a differentiator with corporate customers and discussed how service levels and ease of doing business are now the key drivers for bank selection. With this in mind, how many banks truly look across business lines to offer a consistent solution-based approach rather than a “bespoke lock in service”? And is this what a corporate wants to pay for and use? How do you overcome the technology question (fixed, mobile, cloud et cetera) and focus your competitive advantage on services? What are the key challenges to address in this multi-networked, multi-enabled smart technology world?

Like the earlier payments hub session, speakers on this panel highlighted the growing trend of treasury centralization and the growing relevance of SWIFT to the corporate community. The benefits of using a single solution for end of day statement accounting and continuous monitoring of cash flow were discussed as panelists noted how SWIFT had made a real difference in helping to drive industry standardization.

Mr Artuk noted how Toyota’s main criteria for bank selection was cash management and the right product set. He also commented on the importance of a banking partner’s ability to ensure data and service security as well as offer the right support to facilitate its operations. Summarizing his expectations, Artuk said: “[We are looking for] a diverse selection of cash management solutions that make our company life easier.”

In the closing session, featuring Sido Bestani, Head of Middle East, North Africa & Turkey, SWIFT, ING Bank’s Mr Toraman and Mr Sarafidis, the community was offered the chance to ask questions about SWIFT’s role and future plans. It was made clear that SWIFT should further develop its presence in Turkey. “The volume growth alone show that SWIFT is very relevant in Turkey. It should focus more on this market,” said Mr Toraman.

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