ANALYSİS OF EXCESS CAPACİTY İN TURKİSH BANKİNG SYSTEM AND COMPARİSON WİTH EUROPEAN UNİON COUNTRİES' BANKİNG SYSTEMS

İhsan Uğur DELİKANLI (Banking Regulation and Supervision Agency)

There are two types of banks operating in Turkish Banking System (TBS): Commercial Banks that accept deposits and Development and Investment Banks. TBS is under the control of commercial banks. During the 80s, a series of financial liberalization measures were introduced and the deregulations considerably affected the banking conditions in Turkey. But, the dominance of commercial banks in TBS has been continuing. As a result of the financial liberalization, many foreign banks entered into TBS and commercial banking market structure changed from tight oligoply to loose oligopoly. After 1998, degree of oligopolistic competition in commercial banking started to increase again. In contrast to commercial banking, market structure of development and investment banking in Turkey seems like a cartel.

In TBS, according to intermediation approach, there has been overcapacity. By the measure of this approach, total assets were roughly 40 percent too large in 1999, 30 percent large in 2000. This states that cash flow which banks receive from their issuance of insured liabilities was in excees of the amount of lending opportunities. In other words, the banks did not prefer to shrink, instead, they invested in Treasury Bills. Since, the public sector borrow requirement is very high, this preference was implemented easily.

Compared to the banking systems of member countries' of European Union (EU), the degree of excess capacity in Turkey is near to Finland and Denmark that have very much excess capacity in their banking systems than other EU Countries. Especially, in TBS, the share of banks having low earnings defined as a return on total assets of no more than five percent of the interbank rate and on total capital of no more than interbank rate are very high. Excess capacity in TBS comes from commercial banks. Among those banks, overheads of the medium and large scale banks are very high. Although, the source of excess capacity in EU Banking System is small scale banks, excess capacity in TBS has been caused by medium and large scale banks whose total size of assets is a little more than of medium scale European Banks.

One of the main reasons for excess capacity in TBS is that commercial banking market is under the influence of large scale state owned banks whose share is still 40 percent in total deposits since interest rates for deposits are determined by them. Other reason is that commercial banks have got more incentive to grow their asset size by accepting more deposits because of the higher public sector borrowing requirement and unblanket quarantee given by Turkish Government. Banking regulations that have being changed many times especially in the 90s should be considered another main reason as well as other reasons. Also, it should be stated that oligopolistic market structure of commercial banking, which was monopolistically competitive between 1994 and 1996, brought about excess capacity in TBS.