(MENAFN- Asia Times) While the move will certainlyincrease financing opportunities for the private sector one is not sure whether it would help to draw more Chinese investment to Turkey like to Greece or Iran.A more stable environment might be needed before the Chinese banks can contribute effectively to the relations between the two countries.
ISTANBUL–Turkey's banking regulation and supervision authority has granted permission to Bank of China to launch operations in the Turkish market.
Bank of China becomes the second Chinese lender to enter Turkey after Industrial and Commercial Bank of China (ICBC) which had purchased a majority stake at a local bank last year.
The Turkish subsidiary of Bank of China is expected to commence business in nine months and according to the banking authority's statement published in Turkey's Official Gazette on May 5 99.9% of the subsidiary will be owned by the Bank of China the remaining 0.1% by four companies belonging to another subsidiary of Bank of China and the initial capital will be $300 million.
Bank of China's entry into the Turkish market is a welcome development for both the Chinese and the Turks. The bank has been interested in Turkey for a long time. It had made its first application for a Turkish banking license in early 2010 which was rejected by the authorities due to incompliance with capital requirements.
One year later the bank opened a representative office in Istanbul and after five years of being active in Turkey in this limited capacity Bank of China is now going to launch its full range of banking services.
For the Chinese it is important to have a foothold in Turkey's financial market because Turkey has the eighteenth largest economy in the world and a robust private sector that has the ability to keep on moving forward despite political and economic instabilities.
Besides the expected progress with the 'One Belt On Road' (OBOR) initiative and Turkey's key location on the project's route as a connector between Asia and Europe are expected to open up lucrative business prospects for China in the near future.
For the Turks the arrival of Bank of China is an even more welcome development as the Chinese are coming at a time when other international investors are rather hesitant in bringing in their money. Turkey's economy is actually not a weak performer; after 3% GDP growth in 2014 it has scored 4% in 2015. The problem is however that risks are increasing.
Geopolitical concerns arising out of the escalating conflict in Syria in Iraq and the spillover effects of these conflicts inside Turkey in the shape of terrorist attacks and rockets fired from across the border falling inside Turkish territory are major factors keeping foreign investors at bay.
In the meantime Prime Minister Ahmet Davutoglu's recently announced decision to step away marks the likely beginning of a period of power struggles and political uncertainty in the country which does not make Turkey an attractive destination for investment either. Under the current conditions of weakening international investor confidence and increasing geopolitical risks a new large-scale investment from a major Chinese bank breathes new energy into Turkey's economy.
When Turkey's Deputy Prime Minister Mehmet Simsek made the public announcement on Bank of China's entry into the Turkish market he said that the new bank will 'contribute to efforts for attracting Chinese investment to Turkey and increase financing opportunities for the private sector.'
The latter part of the statement refers to a realistic expectation. With increasing risks a high loan-to-deposit ratio and rising share of non-performing loans Turkish banks are increasingly reluctant to extend new credit to their clients. Under these circumstances as Bank of China will make efforts to establish itself in the Turkish market the new financing opportunities it will provide will be well received by Turkey's companies that are in need for funding.
One has to be more critical with regard to the first part of Simsek's statement at least for the time being. Can the Bank of China (together with ICBC) help to draw more Chinese investment to Turkey?
In theory this is certainly possible. Agreements signed between Turkey and China last November imply the construction of railroads spanning the entire width of Turkey and going beyond to link the country with Central Asia with Chinese finance and the Chinese banks in Turkey are likely to play a role here if and when the project is realized.
However other than these future projects Turkey still cannot be considered a destination for Chinese investment. According to data released by Turkish Ministry of Economy there were 46756 companies with foreign capital registered in Turkey as of January 1 2016 out of which only 739 were Chinese owned. 338 of these companies are doing wholesale trade 103 retail trade and 35 are restaurants.
In other words large-scale Chinese investment (other than the banks themselves) is yet to come to Turkey (and compare this with Turkey's two neighbors Greece and Iran where Chinese firms have bought ports invested in major infrastructure) and despite all the talk and excitement OBOR has not brought anything concrete to Turkey so far. Whether the presence of Chinese banks in Turkey will be a strong pull factor for large-scale Chinese investment is an open question.
Bank of China has become the second Chinese lender in Turkey and Chinese banks active in Turkey are certainly a positive development in terms of both the availability of funding for the Turkish private sector and the progress in relations between Turkey and China.
However given all the ups and downs in the two country's relationship since last summer; with the anti-Chinese demonstrations in Turkey Ankara's decision to annul the missile defense system deal which was initially awarded to a Chinese company and Beijing's decision to tighten visa requirements for Turkish passport holders a more stable environment might be needed before the Chinese banks can contribute effectively to the relations between the two countries.
Dr. Altay Atl is a lecturer at the Asian Studies program of Bogazici University in Istanbul and a senior research associate at Turkey's International Strategic Research Organization (USAK).
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