Tag: Basel III

Public Banks: One More Leak to Plug

To date we have posted two articles specifically focused on differentiates between public and private banks. As they have been in many developing economies ─particularly in India─, banks controlled by the government are milked to the bone with being forced to provide lending to sustain economic growth at the desired levels. This is also the case in Turkey (read Turkish Banks: Differentiating Rapidly, Loan Growth: Where do the Expenses Come From?).

Above we present loans-to-deposit ratios for private and state-run banks along with up-to one-month liquidity requirement ratios where state-runs have traditionally a lower l/d spread (left axis) meaning a stronger funding capacity however, relatively lower LRRs (right axis), also shows the maturity mismatch between their longer-dated assets and short-term financing. This is an interesting case that should be noted in our view. That said, regarding the liquidity Vakifbank (BIST:VAKBN) is relatively in worse shape when compared to its state-run peers.

Prospects of A Liquidity Shortfall

In a country where average maturity of deposits is very short, liquidity risk management for financial instructions is of paramount importance. Most particularly, in Turkey, a country seeking high growth where the consumption is the engine of the economy, the liquidity balance become even more important.

In a previous post we expostulated the deterioration in liquidity adequacy ratios in Turkish banks and warned that banks would be crippled by a liquidity crunch. With the loans to deposit ratio over 100%, it was obvious that banks in Turkey would have some challenges to meet the liquidity requirements adopted by Turkey’s Banking Regulation and Supervision Agency (BRSA). Strictly speaking, Turkish banks have done well in having the necessary assets on hand to ride out short-term liquidity disruptions. But as seen in the liquidity adequacy ratio data released by the BRSA, the trend is simply not pretty.

The first chart above shows Liquidity Adequacy Ratios in Turkey’s banking spectrum overall as the latter only focuses on commercial banks (in other words excludes investment and development banks). The ratios clearly have moved towards the threshold of 100% since the global financial crisis and it is worth to note that the BRSA fines banks when they post a figure below the threshold in two successive weeks.

LCR for Turkish Banks

LCR for Commercial Banks

Things just get stranger and stranger when it comes to analyze liquidity ratios of state-owned commercial bank trio – Halkbank (BIST:HALKB), Vakifbank (BIST:VAKBN), and Ziraat Bankasi. Remember that they used to outperform all other banks in Turkey in terms of liquidity adequacy in 2011.

LCR for State Owned Banks

Apparently at least one of the banks mentioned right above the chart has failed to meet the liquidity requirements. As preparatory to answer the question of which bank(s) has done so, I’d like to show how loans and deposits grew in the meantime.

Loans to Deposit for State Owned Commercial Banks

L/D spread for Halkbank, Ziraat and Vakif were 103%, 96%, and 120%, respectively. Furthermore, for full 2014 fiscal year the average one-month liquidity adequacy ratios for Halkbank and Ziraat were 116% and 112%. Interestingly, no clear information about the liquidity ratios was given in Vakif’s annual reports, however, it was 103% according to my calculation. Most probably Vakif has been posting below-than-requested liquidity ratios for the asset and liabilities with a duration of one-month in 2015.

In broad strokes, despite the fact that current liquidity levels are sobering, Turkish banks with some exceptions are not to face liquidity shortfall in the near term. Nevertheless banks may have to manage their liquidity levels more proactively with the Basel III rules phased in.