Banks of Turkey: Vivid Yet Strained

This paper provides an up-to-date overview of the Turkish banking sector emphasizing its potential to generate value and to support sustainable growth. Since the main channel of financing businesses is bank loans in Turkey, business cycle as well as policy risks play an important part in diagnosing risks that the economy faces via banking. This paper establishes legal as well as recent policy frameworks relating to banking sector and claims that an array of recent policy choices might have increased its vulnerabilities. While part of these vulnerabilities was induced by Turkey's construction euphoria of the post-Lehman years, a non-negligible part was introduced by the government's erroneous understanding of rule of law and an increased discretion in regulating the market. In a nutshell, the recent outlook of Turkey's banking sector is weak, despite the well-orchestrated improvements of the early 2000s. So, Turkey might need a clean slate to re-vitalize her banking sector.