IMF Publishes Report on the 2018 Article IV Consultation with Turkey
IMF published its staff report in the context of the 2018 Article IV consultation with Turkey. Financial sector policies should aim to strengthen the oversight and governance of the banking sector, where progress has been limited on the recommendations of the Financial Sector Assessment Program (FSAP). Progress in implementing the 2017 FSAP recommendations in bank supervision and regulation is uneven and could be stepped up. Specifically, the independence of the Banking Regulatory and Supervision Agency (BRSA) and the quality of nonperforming loan (NPL) data could be strengthened, loan restructuring activity fully could be accounted for, and bank loan classifications and bank governance standards could be further strengthened.
The staff report reveals that the bank capital levels remain high, although some buffers are decreasing. Higher profits improved capital adequacy in 2017, reflecting in part the relaxation of prudential norms and the conservation of capital through the use of state loan guarantees. Since the end of 2016, the system-wide tier 1 capital adequacy ratio has increased by one percentage point to 14.1%. Capital adequacy levels were further strengthened with tier 2 bond issuance. The headline NPL ratio remains low at 3%. However, a broader definition of impaired loans—including restructured credits, “watch list” loans, and NPLs sold to third parties—amounts to nearly 8% of all loans, signaling emerging loan quality weakness. This is especially a concern in consumer credit and small- and medium-size enterprise loans, while signs of distress have also emerged in some larger corporate groups.
The staff recommends that macro-prudential policies should be revisited in areas where vulnerabilities are highest, specifically the highly leveraged corporate sector. Macro-prudential tools should be used to build buffers and contain systemic financial vulnerabilities. Such tools should focus on risks rather than demand management and, as such, some aspects of the post-2015 relaxation of the macro-prudential regime could be revisited, particularly for the corporate sector where bank exposure has grown significantly and vulnerabilities are high. The report also highlights that the implementation of IFRS 9 started in January 2018. Also, new credit classifications and provisioning rules, more in line with the international standards, came into force. Furthermore, a revision of the regulation on internal systems of insurance, reinsurance, and pension companies and other related regulations is being prepared. A qualitative supervisory assessment tool is being developed to assess risk management and internal control systems of insurers.
Related Link: Staff Report
Keywords: Europe, Turkey, Banking, Insurance, Article IV, FSAP, Macro-prudential Policy, NPLs, IFRS 9, IMF
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Previous Article
ESMA Publishes Responses to its Consultations on SecuritizationRelated Articles
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA Finalizes Standards on Methods of Prudential Consolidation
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA Updates List of Other Systemically Important Institutions in EU
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities Welcome FSB Review of their Remuneration Regime
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.
