Macro Environment
Turkey has the second largest population in Europe with a population of 71 million. The country has enjoyed a strong GDP growth of 7% p.a. since 2001. Its currency is stable, and inflation is steadily declining (9.9% in 2006 to 8.5% in 2008 and 6.5% in 2009). Although Turkish economy has been affected from the current global conditions with GDP contracting by -4.7%, it is projected bounce back by 6.2% in GDP growth in 2010[1].
Turkey has experienced an increasing FDI especially in banking sector - recent M&A included HSBC, Unicredit, BNP, NBG, Fortis, Dexia, ING and GE. The government is in the process of implementing both political and economic reforms for EU convergence.
Turkey has a young (53% < 30yr old) and increasingly urban population with a growth rate of around 1.5% per year from 2000 to 2007. 18 cities in Turkey have a population of over 1m. The young population translates into increased housing need and expenditure. The Turkish construction sector has enjoyed an impressive growth for the past 5 years due to domestic demand, driven by rising population and urbanization rate and ever smaller households, as well as external demand, due to the boost in international investor sentiment parallel to the progresses in EU accession talks.
Mortgage Market Size in Turkey
Housing loans were first introduced in Turkey in the 1990's, but the growth in housing loans over the last four years has been phenomenal. Housing loans went from almost zero in 2004 to €25 billion[2] (c. 4.5% of GDP) as of 1H 2010, a figure which is still significantly below the average of developed countries.
Turkish lending market is under-penetrated by all metrics. High interest rates and economic volatility through the 1990s and beginning of 2000s have restrained most borrowers and lenders. Household debt to GDP in Turkey is at 12%, lower than in many comparable countries (Eastern European avg. 23%, EU27 56%)[3]. Around half of the existing loan stock is concentrated in two largest cities, Istanbul and Ankara.
There has been a yearly new loan volume demand of around €8 billion [4] on average for the last 2 years. The demand is sensitive to interest rates, which fell from above 23% in end-2008 to the current levels of around 11-12% APR (all costs included) for Turkish Lira loans. Mortgage interest rates are projected to keep steady in the medium term having come down significantly after a period of record profitability for lenders due to margin expansion following the recent rate cuts by the Central Bank of Turkey (policy rates were cut more than 10pp since Nov-2008 to 6.5%, and widely expected to stay steady in the coming 12 months).
Lenders
The Turkish banking system is largely unscratched by the recent global credit crisis due to very strong regulatory oversight – introduced following the 2001 banking crisis – in key areas such capital adequacy ratio (system average was around 18% in 2009) and foreign currency positions. The industry as a whole funds its lending through retail deposits to a large extent (loan to deposits ratio is currently around 80%), and therefore, it is relatively isolated from the difficult international syndication market.
Although the top 7 banks currently capture 70% of the total outstanding mortgage stock, competition is intensifying in the market as smaller banks introduce new products, realizing the importance of mortgage loans in terms of growth and cross-selling opportunities. Market regulators recently granted licenses to two non-bank lenders with little or no distribution network, and one has already started lending mortgage loans. Several more such players have applied for licensing, a process that may take up to a year.
While Turkish banks have advanced know-how and operational infrastructure in place to support the fast growth in retail banking, there is a renewed emphasis in efficiency and cost reduction initiatives as factors like the falling inflation and real interest rates and increased competition pressure the margins. Increased cost-consciousness partly driven by the new foreign owners of many Turkish banks also pushes the lenders towards greater efficiency and outsourcing.
Role of the Intermediaries
Indirect channels now account for over €500 billion of mortgage advances per year in the major European markets – over 40% of all mortgages. It is expected that the trend towards mortgage intermediation will continue across Europe, and that by 2010 over 50% of mortgages in Europe will be distributed indirectly by such intermediaries.[5]
Penetration of indirect channels in Turkey is currently negligible, but it is expected to gain significant ground in the near future. The main factors that will drive the increased distribution through intermediaries are the following:
[1] FinansInvest Research, July 2010
[2] Central Bank of Turkey (BRSA), as of July 2010
[3] As of 2007, European Central Bank, Central Bank of Turkey
[4] Turkish Banking Association
[5] European Mortgage Distribution, Oliver Wyman/EFMA
Turkey has the second largest population in Europe with a population of 71 million. The country has enjoyed a strong GDP growth of 7% p.a. since 2001. Its currency is stable, and inflation is steadily declining (9.9% in 2006 to 8.5% in 2008 and 6.5% in 2009). Although Turkish economy has been affected from the current global conditions with GDP contracting by -4.7%, it is projected bounce back by 6.2% in GDP growth in 2010[1].
Turkey has experienced an increasing FDI especially in banking sector - recent M&A included HSBC, Unicredit, BNP, NBG, Fortis, Dexia, ING and GE. The government is in the process of implementing both political and economic reforms for EU convergence.
Turkey has a young (53% < 30yr old) and increasingly urban population with a growth rate of around 1.5% per year from 2000 to 2007. 18 cities in Turkey have a population of over 1m. The young population translates into increased housing need and expenditure. The Turkish construction sector has enjoyed an impressive growth for the past 5 years due to domestic demand, driven by rising population and urbanization rate and ever smaller households, as well as external demand, due to the boost in international investor sentiment parallel to the progresses in EU accession talks.
Mortgage Market Size in Turkey
Housing loans were first introduced in Turkey in the 1990's, but the growth in housing loans over the last four years has been phenomenal. Housing loans went from almost zero in 2004 to €25 billion[2] (c. 4.5% of GDP) as of 1H 2010, a figure which is still significantly below the average of developed countries.
Turkish lending market is under-penetrated by all metrics. High interest rates and economic volatility through the 1990s and beginning of 2000s have restrained most borrowers and lenders. Household debt to GDP in Turkey is at 12%, lower than in many comparable countries (Eastern European avg. 23%, EU27 56%)[3]. Around half of the existing loan stock is concentrated in two largest cities, Istanbul and Ankara.
There has been a yearly new loan volume demand of around €8 billion [4] on average for the last 2 years. The demand is sensitive to interest rates, which fell from above 23% in end-2008 to the current levels of around 11-12% APR (all costs included) for Turkish Lira loans. Mortgage interest rates are projected to keep steady in the medium term having come down significantly after a period of record profitability for lenders due to margin expansion following the recent rate cuts by the Central Bank of Turkey (policy rates were cut more than 10pp since Nov-2008 to 6.5%, and widely expected to stay steady in the coming 12 months).
Lenders
The Turkish banking system is largely unscratched by the recent global credit crisis due to very strong regulatory oversight – introduced following the 2001 banking crisis – in key areas such capital adequacy ratio (system average was around 18% in 2009) and foreign currency positions. The industry as a whole funds its lending through retail deposits to a large extent (loan to deposits ratio is currently around 80%), and therefore, it is relatively isolated from the difficult international syndication market.
Although the top 7 banks currently capture 70% of the total outstanding mortgage stock, competition is intensifying in the market as smaller banks introduce new products, realizing the importance of mortgage loans in terms of growth and cross-selling opportunities. Market regulators recently granted licenses to two non-bank lenders with little or no distribution network, and one has already started lending mortgage loans. Several more such players have applied for licensing, a process that may take up to a year.
While Turkish banks have advanced know-how and operational infrastructure in place to support the fast growth in retail banking, there is a renewed emphasis in efficiency and cost reduction initiatives as factors like the falling inflation and real interest rates and increased competition pressure the margins. Increased cost-consciousness partly driven by the new foreign owners of many Turkish banks also pushes the lenders towards greater efficiency and outsourcing.
Role of the Intermediaries
Indirect channels now account for over €500 billion of mortgage advances per year in the major European markets – over 40% of all mortgages. It is expected that the trend towards mortgage intermediation will continue across Europe, and that by 2010 over 50% of mortgages in Europe will be distributed indirectly by such intermediaries.[5]
Penetration of indirect channels in Turkey is currently negligible, but it is expected to gain significant ground in the near future. The main factors that will drive the increased distribution through intermediaries are the following:
- Intensifying competition between lenders
- Lack of distribution channels of smaller players and new entrants
- Increasing product complexity
- Low financial sophistication of average borrower
[1] FinansInvest Research, July 2010
[2] Central Bank of Turkey (BRSA), as of July 2010
[3] As of 2007, European Central Bank, Central Bank of Turkey
[4] Turkish Banking Association
[5] European Mortgage Distribution, Oliver Wyman/EFMA
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