The Turkish banking system developed relatively late compared to Europe and began to emerge in the 19th century. Banking was conducted by minorities and foreign nationals in the country. Since the bankers were active in the Galata district of Istanbul, they were briefly called Galata Bankers since the beginning of the 1850s.

The first important legal text in terms of Turkish banking is the Murabaha Regulation, which was issued in 1852 and tried to prevent usury by limiting interest rates.

With the closure of the Izmir Bank, which was opened unofficially in Izmir in 1842 by foreign nationals, without the permission of the Ottoman government, there was no attempt to establish any bank for a long time. In 1847, Bank-ı Dersaadet was established. Dersaadet Bank, which was active between 1849-1852, was a kind of stabilization fund, the losses of which were covered by the state, in order to maintain the stability of the foreign exchange rate.

The Ottoman Bank, on the other hand, was established in Istanbul in 1863 under the name Bank-ı Osmanî-i Şahane, in partnership with the British-owned Bank-ı Osmani (Ottoman Bank), which was established in 1856, and the French financial group Banque de Paris et des Pays-Bas, which undertook the financing in 1862. The Ottoman administration, which could not establish its own bank, gave the privilege and monopoly of printing banknotes to Bank-ı Osmanî Şahane for 30 years. Deutsche Bank of Germany entered the country as an investment bank.

With the proclamation of the Second Constitutional Monarchy, the number of national banks based on domestic capital also increased. This period, which ended with the War of Independence (1922), is important as a process of gaining experience in terms of the Turkish banking history. The economic targets of the new republic to be established were determined at the Turkish Economy Congress, which was held four months before the signing of the Treaty of Lausanne, and many privileges previously granted to foreign banks were withdrawn with the Treaty of Lausanne. Decisions taken at the congress that economic development should be of a national nature was the first step of the statist approach that would leave its mark on the Turkish economy until the 1950s. The balanced budget approach, which is called the “golden principle” in public finance, has been adopted to ensure that the state budget does not run into deficits.

Following the proclamation of the Republic, several banks were established with government incentives to promote national banking and the Central Bank of the Republic of Turkey (TCMB) was founded in 1931. After the Great Depression that led to economic collapse worldwide, government interventions were seen in banking. Starting with this period, the weight of public banks increased in Turkey. After World War II, government control over the economy began to loosen as a new development policy led by the private sector started to prevail. Private sector banking flourished in this period and with the transition to multiparty democracy, the economy began to expand beyond borders. However, from 1953 onward, the economic balances were upset as inflation rates and foreign trade deficit rose rapidly.

In the early 1960s, 15 banks terminated their operations and were dissolved as the banking system was once again under government control. Until the 1980s, the Turkish economy maintained an isolated look with the governments adjusting interest rates and exchange rates without much consideration for international markets. From 1980 onward, liberalization was introduced in the financial system and the economy reopened to international markets. As the financial system expanded with rapid economic growth, the banking sector began integrating with international banking and financial systems. Several international banking institutions including commercial, investment and retail banks started operations in Turkey and established partnerships with Turkish banks while major Turkish banks opened branches and established new banks abroad.

With TCMB lacking sufficient reserves to intervene in a timely and efficient manner, the banking and financial crisis of 1994 spread and became a threat for the entire banking sector and the economy. The main reason for the banking sector to be so seriously affected by the 1994 crisis was the drop in profitability due to the low exchange rate-high interest rate policies of 1989-1993 no longer being in place. With the regulations introduced in 1989, money markets and foreign currency markets were established, and investors began to turn to foreign currency. However, the Treasury and TCMB fell short in introducing regulations to balance this new trend. In this competitive environment where the number of banks multiplied and the market itself determined the interest rates; the banking system faced a crisis that was exacerbated with the influence of globalization.

The first factoring activities in Turkey began in 1988 with transactions carried out by the banks. In 1990, the first authorized factoring company was founded. Factoring, which is the leading sector in the non-bank financial segment with an important role in diversifying and developing financial services, began to develop rapidly from the second half of the 2000s onward. Turkey entered the new millennium in an environment of major economic decisions. In February 2001, another economic crisis unfolded with the decline of confidence in financial markets. Consequently, the money and foreign currency policies projected in the Disinflation Program of 2000 were abandoned and a flexible exchange rate system was adopted on February 22, 2001, effectively bringing the disinflation program to an end.

The 2000-2001 crisis caused significant damage to the financial system, and particularly to the Turkish banking sector. The “Restructuring Program for the Banking System”, introduced in the aftermath of the crisis under the supervision of the IMF, marked the start of reforms in the financial system. Within the scope of the program, the capital structures of the state-owned banks were reinforced, their duty loss receivables were paid, the regulations allowing new duty losses to occur were repealed and their short-term liabilities were dissolved. The fundamental reforms introduced after 2001 enabled the banking sector to gain a strong financial and operational structure through effective regulations, inspections and strict risk management. Today, the sector, with a strong capital structure, more resilience against crises, and better international competitiveness, stands apart from the struggling banking sectors in other emerging and developed countries. As a matter of fact, Turkey happened to be the only OECD member state not to extend any type of open or discreet public support to the banking sector after the 2008- 2009 crisis.

The first ATM in the world was installed in New York in 1961, but it was removed six months later due to the lack of interest from customers. In the US, the first Electronic Funds Transfer Act was passed in 1978. The first EFT transaction in Turkey was conducted on April 1, 1992, and internet banking started in 1997. Digitization, which has accelerated in banking since the 2000s, has moved to a whole new dimension with the COVID-19 epidemic that started in 2020. The working hours of banks in the world have shortened, but besides, they have gained new digital features: 34 percent have started to open accounts online, 23 percent have remote identification and verification, and 18 percent have activated contactless payment features. Thanks to artificial intelligence and advanced data analysis, the use of Chatbot has started to increase customer satisfaction. However, the privacy and security of personal and financial data has opened up a whole new threat area and has made cyber security one of the most important investments in banking.