TüRKİye ekonomi kurumu

Contributed Session 45 - Financial Systems and Banking II Workshop 4

Do Turkish Commercial Banks Dominate Turkey’s Capital Markets?

ÇAVUŞ, Salim (Marmara University)

KARAKAŞ, Derya Gültekin (Istanbul Technical University)

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Turkey’s financial system has been historically characterized by the dominance of the banking sector. As a typical example of bank-based financial system, capital markets in Turkey started to develop only after the external orientation of the economy in the 1980s. Especially at the initial stages of capital market development, the involvement of banks in capital markets has been acceptable, even desirable in order to sustain broad and active capital markets. However, in later stages, the state had concerns about banks’ involvement in capital markets and came up with regulations excluding banks from some of the capital market operations. These regulations have given way to a new phase in the development of Turkish financial system with the convergence to a more market-based system.

A broad range of the literature is engaged in cross-country as well as country-specific analyses of the characteristics and determinants of financial systems (bank-based vis-à-vis market-based). On this ground, shifts between bank-based and market-based systems in specific country cases draw significant attention. Even though firm level, industry level or aggregate data can give some insights on the nature and evolution of financial systems, the following questions remain to be considered: by whom capital market funds are collected, used and distributed in a country. These questions are particularly important for the Turkish case as Turkish banks have been highly involved in capital market operations. Hence, the distinction between banking sector and capital markets becomes blurred in Turkey and it leads to questioning whether capital markets are an effective alternative for fund raising for the corporate sector.

This paper will analyze the extent of the involvement of Turkish commercial banks in Turkey’s capital markets. The bank activities will be considered in the two sub-markets that are stock markets and bond markets. For the analysis of banks’ capital market activities, we will focus on the three roles that they perform: banks as fund-suppliers, as fund-demanders and as intermediaries in capital markets. The data source for the analysis will be ISE and CMBT statistical reports, and also BRSA and TSPAKB records will be used for grouping both banks and intermediary institutions.

The analysis will allow us to evaluate the significance of banks in controlling Turkish capital markets. Not only the dominance of banking sector in the financial system but also a high degree of penetration of banks to capital markets will be the evidence for Turkish financial system to be highly operating as bank-based. Such penetration will mean that capital markets cannot be considered as an alternative to banking system as it gives also the control of financial resources in capital markets ultimately to the hands of banks. Given that conglomerates that are active in more than one sector own the majority of commercial banks, the diffusion of commercial banks to capital markets will indicate that financial resources have been mainly controlled by particular holding companies to enhance their capital accumulation.

JEL codes: G10; G21

3 Eylül, Cuma Friday, September 3

Contributed Session 45 - Financial Systems and Banking II Workshop 4

Lifting the Veil on Islamic Banking: A Comparative Analysis between the Conventional and Islamic Banks in Turkey

DEMİRALP, Seda (Işık University)

DEMİRALP, Selva (Koç University)

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In the traditional analysis of the monetary transmission mechanism, research on Islamic banking is rare. One reason for this reluctance could be the perception of Islamic banks as primarily religion-driven institutions that do not act based on pragmatic interests and therefore would not show much sensitivity to interest rate fluctuations due to their Islamic “interest-free” structure. Particularly the 9-11 terrorist attacks increased the presumptions about Islamic banks as ideological entities, and even as financiers of terrorist activism. This prevented the possibility to perceive these financial institutions as part of the global capitalist order. In this paper, we aim to analyze the extent of any pragmatic behavior among Islamic economic agents by providing a comparative analysis of Islamic and conventional banks in Turkey. We believe that our findings will make a contribution to the debate over whether Islamic banks propose a challenge to the global capitalist order or whether they are rather absorbed by it, as neo-liberal perspectives would expect.

Using a VAR framework, we investigate the relative sensitivities of conventional and Islamic banks’ balance sheet components to changes in interest rates in Turkey. A priori, one may expect Islamic bank deposits to show less sensitivity to interest rate fluctuations due to the “interest-free” nature of these deposits. To the contrary, we find that these banks experience even a larger decline in their incoming funds relative to conventional banks following a monetary policy tightening. The elasticity of sources of funds to interest rate fluctuations suggests that the customers of Islamic banks are at least as sensitive to interest rate changes as the customers of conventional banks, in contrast to the common notion that these banks are preferred because they operate on an “interest –free” structure. Our evidence suggests that the typical customer that uses an Islamic bank as a saver acts with similar pragmatic motives as her counterpart that uses a conventional bank.

Keywords: Monetary transmission mechanism; Islamic banking; Bank lending channel

Jel codes: E52; E58

3 Eylül, Cuma Friday, September 3