(MENAFN- Gulf Times) Turkish banks may put expansion on hold in 2016 despite years of economic growth, industry analysts told Reuters last week, putting off opening new branches or hiring staff as tougher regulations squeeze profits and excess capital.
After weathering their own banking crisis in 2001, Turkish lenders were well capitalised compared to emerging market rivals. The highly competitive sector has also been targeted by foreign lenders like Spain's BBVA and Italy's UniCredit, although some, such as HSBC, have struggled.
Turkey's banks have benefited as a young and fast-growing population has spurred economic expansion and consumer spending. But the industry's growth slowed over the last five years amid measures to rein in consumption.
In March, lenders will feel more pain when the Basel III global regulations are introduced, forcing banks to hold more regulatory capital.
"For most of the banks, preserving capital adequacy ratios has become more important than growth," said Aykut Ahlatcioglu, a banking analyst at Oyak Invest.
"Considering annual population and economic growth, banks may be expected to hire more personnel and open more branches. But banks do not foresee such hirings or new branches, despite expecting growth."
The sector's return on equity, a measure of profitability, has fallen to 10% from 19% over the last five years. The regulations introduced five years ago - including higher reserve requirements - cost the sector an estimated 35bn lira ($11.5bn).
Soon, Basel III rules will put more pressure on capital adequacy ratios, a measure of financial health, giving banks less capital to play with.
Turkish banks' average capital adequacy ratios fell to 15.5% as of November 2015 from 19% in 2010. Basel III could shave another 1-2% off, estimates Hasan Kilic of Deloitte.
Many banks like Garanti, Turkey's second-largest listed bank, have announced growth projections for 2016 but are not hiring new personnel or opening new branches.
Akbank, the third-largest listed bank, cut around 100 branches last year, although it plans no further cuts.
Islamic lender Turkiye Finans, which is not listed, also does not plan to open new branches in 2016.
Instead, banks are turning to less capital-intensive digital technology to boost growth, said Oyak Invest's Ahlatcioglu.
Turkey's competitive retail banking sector already appeals to its young, tech-savvy demographic through sophisticated services like biometric ATMs, multiple currency accounts and the ability to send money overseas through mobile phones.
State-owned Ziraat, one of Turkey's biggest lenders, has started focusing on digital banking, and top private lender Isbank is following suit.
The Banks Association of Turkey data shows 43.4mn internet banking users in the country as of September 2015, up from 34.5mn at the same period in 2014.
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