Treasury Management
Developments in İşbank's balance sheet composition paralleled those of the sector in 2011.
A year in which the extent and effects of the global financial crisis became deeper and more pervasive
2011 was a year in which the effects of the global financial crisis became deeper and more pervasive as worries increased about the sustainability of public debt levels in Euro Zone countries and deep-seated problems with growth and employment persisted in the US economy.
On the international front, the public sectors of many countries–particularly those in the Euro Zone–which had initially come to the support of their respective financial sectors when the latter caused the problems that triggered the global crisis in the first place, suddenly found themselves in the position of being the chief sources of risk in the second half of 2011.
High levels of public debt, mounting budget deficits and low growth performance in some Euro Zone countries such as Greece, Ireland, Spain, Italy and Portugal further exacerbated worries about the ability of those countries to go on refinancing their debt. Rising country risk and serious impairments in the value of risky countries’ bills began to have an indirect impact as well on the banking industries of countries where substantial volumes of such instruments were being shown on balance sheets. Although various measures to set markets’ minds at ease about the sustainability of such debts were considered by the European Union, the measures that were actually taken were insufficient to alleviate the concerns. In the developed countries, central banks sought to stave off further worsening of financial markets by providing banks that were running short of funding with resources in various ways. Thus the European Central Bank accelerated its bond purchases both to reduce problem countries’ borrowing costs and to lighten banks’ liquidity difficulties. In the United States, the Federal Reserve Bank cut its long-term interest rates and began buying long- rather than short-term securities in order to lower their funding costs and to boost their liquidity.
Problems in developed countries’ markets and the measures being taken to deal with them had a direct impact on emerging countries and their markets. As capital outflows gained momentum, particularly during the last quarter of the year, emerging countries’ currencies began to lose value.
Two complementary goals in CBRT policy: Price stability and financial stability
In Turkey, the Central Bank (CBRT) made intensive use of exchange rate auctions and monetary policy tools both to reduce the impact that the global financial crisis had on the domestic market and to support financial system stability. Throughout the year it also took particular care to keep exchange rates and interest rates stable so as not to upset domestic economic growth.
In 2011 CBRT began employing monetary policy actively and dynamically to simultaneously achieve two complementary goals: price stability and financial stability. To accomplish this it wielded three basic tools including interest rate policy, reserve requirements policy and reserve policy.
To keep capital market activity and the availability of domestic credit in balance and within prescribed limits, CBRT employed a rather wide interest rate corridor. One outcome of this was volatility in Turkish Lira money market interest rates throughout the year. Action on the reserve requirement front also had the effect of making banks more dependent on CBRT for their funding. Significantly greater (as compared with the previous year) volatility in both domestic and international markets in line with global developments gradually pushed up mediation and resource costs in the banking sector due to measures being taken on the domestic front to deal with it. The overall impact of this was to depress the sector’s profitability. Throughout the year, Turkish banks’ net interest rate margins were managed in such a way as to prevent them from falling below a predetermined level insofar as it was possible to reflect them in asset-side pricing while balance sheet profitability was supported instead by increasing transaction volumes and commission income.
Changes in the banking sector’s balance sheet composition
The Turkish banking industry’s total assets increased by 21.0% in the twelve months to end-2011 and reached TL 1,218 billion in value. With the measures that were taken by authorities in 2011, the growth in the loan supply was kept under control. The demand for all types of loan continued to increase although the rise lost some of its momentum as compared with 2010. Banks adhered to their strategy of concentrating on lending to support profitability. In parallel with this, changes took place on the asset side of the sector’s overall balance sheet; banks’ loans gained greater weight among their assets while their investment portfolios gradually accounted for less.
As at the end of 2011, in the Turkish banking system, the share of TL denominated securities in TL assets dropped to 27.6% from 32.4% compared to year end 2010 whereas, the share of FX denominated securities in FX assets decreased to 13.7% from 17.5%. At year-end 2011, share of total securities within total assets was 23.4% with a decrease of 5.2 percentage points compared to year end 2010.
During the same 12-month period, the share of total loans to total assets increased by 3.9 points and reached 56.1%.
As of December 2011, the Turkish banking sector’s total deposits(*) increased by 12.7% on TL basis. TL deposits rose by 6.1% while TL equivalent of FC deposits went up by 28.3% and USD equivalent of total FC deposits increased by 4.7% compared to end of 2010. Compared with the previous year, there was heavier use of non-deposit liability items as sources of funding throughout the sector in 2011. This can be attributed especially to a sector-wide slowdown in the rate of deposit growth as measured in real terms but it was also due to tight liquidity having made deposits more expensive. Thus the ratio of the sector’s non-deposit liabilities (excluding shareholders’ equity) to its balance sheet total went from 25.3% at the end of 2010 to 31.0% as of December 2011.
Developments in İşbank’s balance sheet composition paralleled those of the sector as a whole in 2011.
Treasury transactions contributed towards the Bank's effective risk management in 2011.
Effective risk management through treasury transactions
Transactions related to management of İşbank’s liquidity, securities portfolio and foreign currency position are made under the responsibility of İşbank Treasury Division.
Balance sheet management is executed in line with the principles of the Bank’s Asset-Liability Management Policy and within the framework of the decisions taken by the Asset-Liability Management Committee, by keeping in mind both the liquidity and structural interest rate ratios, by using effective risk management models and by taking into account momentary market developments and all kinds of risk elements.
To manage liquidity, investment portfolios and currency positions derivatives are used as well as money market and capital markets instruments within the limits of market conditions. All such management is informed by the goal of minimizing the Bank’s exposure to interest rate, exchange rate and liquidity risks.
(*) Excluding interbank deposits.