This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 ANKARA 000808
SIPDIS
SENSITIVE
STATE FOR EUR/SE, AND EB/IFD
TREASURY FOR OASIA - JLEICHTER AND MMILLS
NSC FOR BRYZA AND MCKIBBEN
E.O. 12958: N/A
TAGS: EFIN PGOV TU
SUBJECT: MEETING WITH BANK REGULATORY BOARD CHAIRMAN
REF: ANKARA 763
1. (Sbu) Summary. In his first meeting with Econcouns, Bank
Regulatory Board Chairman Tevfik Bilgin claimed he was fully
independent and laid out his vision of a strong bank
regulator, working closely with the newly-separate deposit
guarantee agency. Bilgin commented on lessons learned from
the Imar Bank scandal and vowed to take a restrictive line on
bank ownership criteria, though he was not optimistic the
courts would reverse their recent overturning of SDIF
interventions in Demir Bank and Kent Bank. End Summary.
Separation of BRSA and SDIF:
---------------------------
2. (Sbu) On February 9, Econcouns and Econoffs met with
Tevfik Bilgin, who has had something of an action-packed
honeymoon period since being appointed Chairman of the Bank
Regulatory and Supervisory Agency (BRSA) in November. Until
15 days ago, Bilgin was also the Chairman of the board of
SDIF (Savings Deposit Insurance Fund), but now the two boards
are separate (reftel). Bilgin praised the separation, and
said the new SDIF board, which will sit in Istanbul rather
than Ankara, will benefit both from the proximity to the
Istanbul financial center and from the distance from
politicians in Ankara. As for BRSA, Bilgin welcomed his
being able to concentrate on BRSA's core functions, noting
that he had been obliged to spend seventy percent of his time
on SDIF issues. He recognized, however, that SDIF and BRSA
will need to cooperate closely. To this end, he and the SDIF
chairman plan to meet every week, and senior BRSA staff are
currently on loan to SDIF.
Banking Law Revisions and Bank Ownership Criteria:
--------------------------------------------- ----
3. (Sbu) Bilgin said his top priority in the coming months
will be to update and revise Turkey's banking law. Ideally,
in Bilgin's view there should be two laws: one for BRSA and
one for SDIF. Among other improvements, the law needs to be
harmonized with EU requirements and with Basel rules. Though
Bilgin claimed the existing law has strict rules about bank
ownership, there is room to tighten these requirements, since
"the best way to steal from a bank is to own a bank."
Bilgin's personal opinion is that owners of media outlets
should not be able to own banks. Some draft revisions have
been passed to the Bankers' Association for comments and
after the Association and the IFI's provide comments, the
BRSA will ask the GOT to submit the law to parliament,
probably sometime in the spring.
4. (Sbu) Bilgin pointed out that Cukurova Group's recent
attempt to get back into the sector was an issue for BRSA as
well as SDIF, since it would involve the grant of a banking
license. Bilgin said that Cukurova's proposal called for
Cayman Islands-based North Way Petroleum to be the owner of
Yapi Kredi Bank, and the BRSA would need to have far more
information about this group before it would consider
awarding a banking license.
Independence:
------------
5. (Sbu) In reply to a question from Econcouns, Bilgin
claimed he was fully independent, citing his ruling on the
Cukurova issue. Bilgin claimed that no one in the government
had called him about the Cukurova case. He also said that he
challenged anyone to find a political appointment or a
political credit during his time as manager of state-owned
Halk Bank. Of course, he had to go to Deputy Prime Minister
Sener on issues affecting the Government, such as the
phaseout of the deposit guarantee, but otherwise he was
independent.
Imar Lessons and Bilgin's Vision:
--------------------------------
6. (Sbu) Bilgin laid out a vision of a strong BRSA, whose
presence should be felt in the Banking Sector, "like Big
Brother." As a former sworn auditor (on-site bank
inspector), Bilgin intended to meet frequently with the sworn
auditors, as well as with bankers, to be sure BRSA's presence
is felt. Some of the lessons learned from the Imar Bank
scandal are to conduct Information Technology audits and to
pay greater attention to bank branches. He also said
inspectors need to exert their powers during audits, going to
different bank departments without notice and demanding
information, rather than passively remaining in a separate
room and requesting documents. Bilgin confided that some
inspectors had called for regulatory intervention in Imar
Bank as far back as 1986. Currently, there are ten sworn
auditors at Imar Bank plus many investigators from the
Turkish police, but they are unable to piece together BRSA's
pre-2003 accounts. Bilgin does not believe there are other
Imar-like banks in the sector, however. Noting that BRSA has
340 employees, 80 percent of whom have advanced degrees, he
said he is hiring 30 new staff, of which 15 would be sworn
auditors.
Demir and Kent Bank Court Cases:
-------------------------------
7. (Sbu) Bilgin said the tenth chamber of the Danistay
(Council of State) which specializes in BRSA/SDIF cases, has
always ruled in favor of the regulators. The problem with
the Demir Bank and Kent Bank cases was with the appeal to the
Danistay's General Assembly, which ruled in favor of the
former owners. Bilgin said the court ruled that the Demir
and Kent cases were fundamentally different from other bank
interventions, and that the Treasury should have helped Demir
and Kent the way it helped other banks. The BRSA is asking
the court to review its decision but Bilgin is not
optimistic. Noting that Demir is now owned by HSBC, Bilgin
surmised that the former Demir owner would come to BRSA and
SDIF and ask for another bank, or a new banking license.
Bank profitability, open positions, deposit guarantee
phaseout:
--------------------------------------------- -----------------
8. (Sbu) Bilgin agreed that 2004 will be less profitable for
Turkish banks than 2003, with falling interest rates driving
down profits on banks' government securities portfolios. In
this environment, Bilgin said there was intensifying
competition among banks on credit business, particularly with
small- and medium-sized enterprises (SME's). Banks will have
to develop their SME lending businesses, given that large
corporations are able to borrow offshore.
9. (Sbu) BRSA is closely monitoring banks' exposure to
foreign exchange risks, using the reporting requirements
imposed after the 1994 and 2000 crises. Some banks are able
to hide their positions offshore, and BRSA is required to ask
fellow regulators in other countries to share information.
Bilgin said this is a problem with some countries, mentioning
Russia, Switzerland, and "some island countries."
10. (Sbu) Bilgin does not anticipate deposits flowing to
state-owned banks when the deposit guarantee is phased out.
He pointed out that the guarantee will remain in place for
deposits up to TL 50 billion (about USD 35,000) which will
cover 95 percent of deposits. On the other hand, the new
regulations will mean that only deposits are covered,
excluding other kinds of bank liabilities such as interbank
loans. This will lead non-deposit bank creditors to be more
vigilant about bank creditworthiness and may lead to higher
interest rates being charged to some banks.
State-owned banks:
-----------------
11. (Sbu) Since Bilgin was recently the CEO of state-owned
Halk Bank, econoffs inquired as to the status of the GOT's
bank privatization plans. Bilgin only offered his analysis
that with the right preparation, Halk could be privatized. By
the right preparation, he meant reducing the staff from eight
thousand to four or five thousand, and reducing the branch
network from 540 to 300 branches. Bilgin claimed that Halk
had a strong niche as lender to SME's, especially in
Anatolia. The privatization of Ziraat Bank, on the other
hand, would be a different story, since Ziraat is a huge
operation. Separately, Bilgin said the regulators' decision
to merge Pamuk Bank into Halk Bank was not final, and could
be revised.
EDELMAN