Former Turkish Finance Minister Albayrak responsible for huge losses at public banks

Former Treasury and Finance minister Berat Albayrak was responsible for the draining of nearly all $128 billion in reserves at the central bank in a futile effort to defend the value of the Turkish lira. Now it turns out that, not only did the central bank’s gold reserves suffer an unexplained loss, but the Turkish state-owned banks also saw heavy losses during Albayrak’s tenure.

Gold reserves at the central bank are now subject to dispute. TCMB  President Şahap Kavcıoğlu recently gave a live broadcast jointly on three channels, and he stated that Turkey's gold reserves, which have been kept abroad for years, were brought to Turkey during the period of former Treasury and Finance Minister Berat Albayrak.  There are 720 tons of gold reserves, he insisted.

However, in the last report announced by the World Gold Council regarding the gold reserves at the end of the last quarter, it was revealed that Turkey's official gold reserves were much lower than the amount claimed by Kavcıoğlu.

According to the data announced by the WGC on April 30, 2021, the amount of Turkish central bank gold reserves is 512 tons.

While the absence of 208 tons of gold reserves sparked new discussions in the Turkish parliament, the questions about the gold reserves raised by opposition spokesmen were left unanswered.

But the controversy over Albayrak’s management of Turkey’s financial resources grows more insistent with the release of data from the Banking Regulation and Supervision Agency (BRSA) on the banking sector in the first quarte of 2021. Despite the effects of the pandemic, in the first quarter, most of private and foreign-owned banks increased their profits from the same period of the previous year. But profits at state-owned banks plunged in the same period. State-owned Halkbank's profit for the period dropped by 90 percent, for example, as the table below illustrates.

BANK NAME                                                  2021Q1 PROFIT                             2020Q1 PROFIT

AKBANK                                                         2.028.142.000                               1.302.666.000

WARRANTY BBVA                                         2.512.686.000                               1.662.774.000

ICBC TURKEY                                                  101.325.000                                     95.604.000

QNB FİNANSBANK                                          651.086.000                                   748.591.000

ŞEKERBANK                                                        6.262.000                                     33.064.000

TKYB                                                                  198.161.000                                   90.313.000

TSKB                                                                  227.110.000                                  152.411.000

YAPI KREDİ                                                    1.452.729.000                               1.129.443.000

T. İŞ BANK                                                      1.085.000.000                               1.046.000.000

TEB                                                                    339.000.000                                  396.000.000

VAKIFBANK                                                       750.000.000                               1.716.000.000

ZIRAAT BANK                                                   961.000.000                                1.871.000.000

HALK BANK                                                        59.035.000                                   825.085.000

 

Since the Constitutional amendment referendum in 2017, state-owned banks are being used as tools for re-election by the Erdogan government – research by the London School of Economics confirms this.

Further, in order to drive economic growth, large amounts of low-interest loans – backed by cheap credit from the government’s Credit Guarantee Fund -- were distributed by the state-owned banks last year to their clients.

“The nation’s three largest state-owned banks offered products from mortgages and credit for home appliances to holiday packages at below-inflation interest rates,” Bloomberg reported on June 1, 2020. Banks were forced to lend more aggressively to support this policy.

Now many of these loans  remain heavy on the state-owned banks’ balance sheets. The state-owned banks have depleted their equity, reduced their profitability, and increased the 'duty losses' borne by the Treasury. The bill for growing duty losses must be paid by taxpayers  increasing the debt burden of the Treasury.

Halkbank, which is among the 10 largest banks in Turkey, announced that it made only TRY 59 million in profit in the first quarter of 2021. A small- or medium-sized enterprise (SME) normally earns more profit than that. Halkbank had announced profit of TRY 825 million in the January-March period of last year, so Halkbank saw profit fall by 92 percent in 2020.

Similarly, the first quarter profit announced by Ziraat, Turkey's largest state-owned bank, which is also known as the "flagship" of the banking sector, has shown a big decrease compared with the same period in 2020. Ziraat saw profit plunge 49 percent to TRY 961 million from TRY 1.87 million in the first quarter of 2020.  

State-owned Vakıfbank, which had been one of the most profitable among these banks, was transferred to the Treasury last year and a majority stake was transferred to the Turkish Wealth Fund (TVF), of which Erdoğan is the head.

Vakıfbank also announced a heavy drop in profit in the first quarter of 2021 of 44 percent, to 750 million TL from 1.7 billion TL in the first three months of the previous year.

Albayrak also initiated a credit campaign against inflation with low interest rates. Hundreds of billions of lira in loans were distributed by state-owned banks with a monthly interest rate of 0.68 percent for housing, automobiles, durable consumer goods, white goods and a retail consumer loan campaign.

Albayrak resigned in November 2020, along with central bank governor Murat Uysal who was replaced by Naci Ağbal. Naci Ağbal raised the key interest rate to 19 percent before being fired by Erdoğan.

The low return on these loans combined with the transition to a high interest rate environment in 2020 resulted in a substantial decrease in profit for state-owned banks in the first quarter. There is a danger that the state-owned banks will begin to make losses in the next three months and these losses will have to be covered by the Turkish Treasury. This would come at a time when the government is already under pressure for revenue, and would be most unwelcome.

Clearly, Albayrak has much to answer for.