Credit boom, corruption dominate financial sector!

Turkey’s banking sector saw worryingly rapid credit growth in 2013 as the country’s central bank looked to keep interest rates low and stimulate growth, while the year also saw the promising expansion of Islamic financing in domestic markets.

Credit boom, corruption dominate financial sector!

Turkey’s banking sector saw worryingly rapid credit growth in 2013 as the country’s central bank looked to keep interest rates low and stimulate growth, while the year also saw the promising expansion of Islamic financing in domestic markets.

But Turkey’s financial sector in 2013 may also be remembered for the corruption probe, which is centered on the banking practices of a major state lender that was deeply involved in the gold trade with Iran.

In their last quarterly report, Ankara banking regulators said in September that household lending grew 28 percent year on year, adding that loans to businesses grew a staggering 41 percent year on year.

Since 2010, the report said, the total loan volume grew from TL 535 billion to above TL 1 trillion. Consumer debt also soared between September 2010 and 2013, growing 88 percent to TL 82.3 billion.

Behind the credit boom has been a central bank policy of keeping borrowing rates low as Turkey looks to improve its sluggish growth rate. Turkey’s economy grew 4.4 percent in the third quarter of 2013, but just 2.2 percent annually in 2012. Both numbers fall short of the 8.5 percent annual growth Turkey saw in 2011. Turkey’s Central Bank Governor Erdem Basci said as early as August this year that the bank wouldn’t raise interest rates to defend the lira or combat growing inflation.

A decade after Turkey weathered its most serious banking crisis, economists are worried that the credit boom has triggered a credit bubble. In 2000 the country’s financial sector was rocked by a scandal involving deep corruption in private and state lenders, and later saw a series of comprehensive banking reforms that won applause overseas and helped fuel a near-tripling of Turkey’s GDP per capita over the last decade.

Turkey also seeks to transform itself into a global financial leader with the opening of the

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