When a country’s banking sector sees losses of some $12 billion, with 10 of its main outlets being taken into receivership by the government, it’s clear things are not going too well down on the high street. Add in that the $12 billion represents about six per cent of the nation’s GNP, plus the fact that the collapsed banks have been run by some of Turkey’s top business and political figures, and the extent of the crisis becomes clear.
Yet while the country is going through the most astonishing banking scandal in its history, according to most analysts, the upshot of the crisis is likely to be a positive one — and not just for the banking sector. A springboard for an anti-corruption campaign, the crisis seems set to boost investor confidence in the institutions that survive and boost political confidence that at last something is being done to tackle the widespread cronyism of Turkey’s over-inflated banking and financial sector.
The feeling is that the country has far too many banks anyway, many were granted licences under distinctly hazy circumstances
The realities became stark earlier in September when grainy security camera video footage was revealed showing a remarkable scene in the central vault of Egebank, one of the 10 Turkish banks now taken over by the government. In the gloom, what appeared to be happening was Egebank CEO Murat Demirel and various others filling large sacks with cash, bonds and anything else they could find from the bank’s safes.
The scene took place the night before the bank was taken over, appearing to suggest that Demirel had been tipped off about the imminent arrival of government inspectors and had decided to organise a heist of his own bank.
The question then, of course, was who tipped him off, and did having an uncle who was president of Turkey at the time —Suleyman Demirel — have anything to do with this?
Over the days following, it became clear that senior executives, who had embezzled funds via a number of front companies and shady banks in Northern Cyprus, had hollowed out Egebank. It also became widely felt that although police and banking officials were concentrating on Egebank, it was not the only one of the 10 that had been similarly ripped off.
Under Turkey’s banking regulations, private investors in the 10 banks should not be hurt by the take-over, as the deposits have been placed in the Deposit Insurance Fund, meaning that the government is now obliged to stump up the money that investors lost. This system, introduced to boost confidence in the banks, is also now under attack, as it appears to have been exploited by unscrupulous bankers who have spirited away assets in the knowledge that in the end the government will bail the investors out.
More fundamentally, the feeling is that the country has far too many banks anyway, many of which were granted licences under distinctly hazy circumstances, and that the sector needs to consolidate dramatically. At present there are some 87 banks in Turkey; most analysts see a future in which there are just five or six.
A shakedown has been long in the offing, as has a drive to start uprooting the widespread graft within the system. This corruption seems to have begun with the private banking sector itself, which mushroomed in the 1980s and early 1990s under the get rich quick policy of the then president, Turgut Ozal. Under President Demirel’s subsequent term of office, its seems the chickens came home to roost, with Egebank being a good example of what went wrong.
In the high inflation environment of the late 1990s, Egebank began to offer higher and higher interest rates for depositors in order to try and draw money in for reinvestment in overnight loans, the repo market, and in Treasury bills, which were hitting interest rates of over 100 per cent in 1998-1999. However, the repayment of the interest to investors forced Egebank into trying to draw in even more cash — offering depositors rates way above the rest of the market. The result was a bubble that had to burst — particularly when the bank’s deposits were being siphoned off by the chief executives. A day was bound to come when the bank could no longer cover itself.
This seems to have happened to eight banks at roughly the same time earlier in 2000. Two more were taken over in October — Etibank and Bank Kapital. These take-overs have had knock-on effects in other business areas too. Etibank was part of Bilgin Holding, whose owner, Dinc Bilgin, also runs Medya Holding, the company operating a leading daily newspaper — Sabah — and the TV station ATV. Medya Holding has now had its shares pulled off the Istanbul Stock Exchange, and Sabah has found itself a quarter-owned by the government now that Etibank has come under the Deposit Insurance Fund’s wing.
Immediately behind the current clean-up are a troika of politicians and civil servants
Meanwhile, another of the taken-over banks, Sumerbank, is also undergoing investigation, with former owner Hayyam Garipoglu standing accused of syphoning off $1.9 million of the bank’s deposits to his company based in Switzerland. A former central bank governor, Rustu Saracoglu, is also under suspicion and banned from leaving the country, his passport being removed from him at Istanbul airport as he tried to board a flight for London.
Immediately behind the current clean up are a troika of politicians and civil servants: Interior Minister Sadettin Tantan, the Banking Regulatory and Auditing High Council chief, Zekeriya Temizel, and, some claim, President Ahmet Necdet Sezer, the recently elected former Supreme Court judge who has made enforcing the rule of law more of a point of principle than many of his forebears.
Temizel has been leading the charge and has a reputation for honesty. He was Treasury minister under the previous government, and, many thought, had been written off by his own party after being given the impossible task of winning the mayorship of Istanbul in 1999. However, he is certainly back, and his banking authority is a new institution which seems to have been designed for the purpose of cleaning up the sector — a policy that the IMF and World Bank, which have been highly involved in the restructuring of Turkey’s economy in recent years, have also insisted on.
Tantan also has a reputation for honesty and has been urging Turkish society at large to rally behind the anti-corruption effort. Above him, Sezer himself has continued to push for wider reforms of the constitution and state to establish the kind of legal practices as well as principles that are necessary to make Turkey acceptable to the EU.
How these three will fare remains uncertain. The disclosures over the banks coincided with the fourth anniversary of the Susurluk scandal, in which a mafia boss, his girlfriend, a senior politician and a police chief were found to have been travelling together after their car crashed into a truck in the northwestern town of Susurluk. They had been carrying diplomatic passports and weapons issued by the interior minister. The scandal exposed links between the state, the mafia and the government administration at the highest levels. Yet so far, the only person prosecuted in the case has been the driver of the stationary truck into which the unlikely travelling companions’ Mercedes crashed.
Expectations for a fuller purge of corrupt officials are higher this time, but Turks have long learned to be philosophical about such dramatic events.
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Copyright © IC Publications Limited 2001. All rights reserved. No part of this site may be reproduced or transmitted in any form by any means or used for any business purpose without the written consent of the publisher. Whilst every effort has been made to ensure that the information contained herein is as accurate as possible, the publisher cannot accept responsibility for any consequences arising from its use.