In 2021, the world economy switched to a rise in a surprisingly short time, while banks have been able to avoid worst-case scenarios. Banks and bankers played a major role in this recovery. Banks have not only been effective in providing state aid and maintaining financial stability through their continuous day-to-day operations, they have also opened their balance sheets to lending. Global loans increased by 11 percent last year. It should be noted that banks achieved this at a time when most branches were closed.1

Looking at the Turkish banking sector, according to the BRSA’s (Turkish banking authority) December 2021 data2, the total loan size increased by 37.05 percent compared to the end of 2020 and reached TRY 4,901 billion. The ratio of foreign currency (FX) loan volume within the total loan amount increased by eight points compared to the previous year and became 42 percent. When the distribution of loans by sectors is analyzed, it is seen that the first three ranks did not change compared to the previous year. Accordingly, the share of the construction sector in total loans is 8.29 percent, the electricity, gas and water resources production and distribution industry is 7.69 percent, and the share of the wholesale trade and brokerage sector is 7.26 percent. The NPL ratio of loans, which was 4.08 percent in 2020, decreased to 3.16 percent as of December 2021.

In the same period, total deposits increased by 53.4 percent compared to the previous year and amounted to TRY 5,303 billion. The TRY 1,880 billion of the total deposits consisted of Turkish Lira deposit/participation funds, TRY 3,006 billion from foreign exchange deposit accounts/participation funds, and TRY 417 billion from precious metal accounts. Due to the sharp increase in exchange rates throughout the year, the share of foreign exchange deposit accounts/participation funds in total deposits increased by 10 percentage points compared to December 2020 and reached 57 percent.

The asset size of the Turkish banking sector increased by 50.9 percent in December 2021 compared to the end of the previous year and reached TRY 9.213 billion. The most important sign of the strengthening of the banking sector is that the ratio of the sector’s asset size to GDP approached 1.3 percent as of December 2021. By the end of 2020, this rate was 1.21 percent.

As of December 2021, the net profit of the Turkish banking industry is TRY 92 billion with an increase of 53.3 percent compared to the previous year. In the same period, net profit increased in all public, domestic private and foreign bank groups compared to the same period of 2020. The profit of public banks increased by 0.23 percent to TRY 21.53 billion, the profit of domestic private banks increased by 88.2 percent to TRY 40.26 billion, and the profit of foreign banks increased by 93.79 percent to TRY 30.29 billion. Return on equity, which was 11.36 percent in 2020, reached 15.34 percent in 2021, while return on assets increased from 1.38 percent to 1.67 percent in the same period. The capital adequacy ratio of the sector remained almost at the same level compared to the previous year and was recorded as 18.34 percent.

While the turnover of the Turkish factoring sector was TRY 199.6 billion as of December 2021, the net profit of the sector was TRY 1.8 billion. Its total assets increased by 35.2 percent compared to the previous year to TRY 65 billion TL, and factoring receivables increased by 33.6 percent compared to the previous year to TRY 59.5 billion. Accordingly, it is seen that the receivables volume of the industry has grown continuously in the last four years and there is an increase of up to 89.5 percent when the end of 2021 compared with the end of 2018.

In 2021, loans provided to factoring companies from banks increased by 37 percent, securities issued by 32 percent, and shareholders’ equity increased by 21 percent compared to the previous year. As of December 2021, factoring receivables amounted to TRY 59.5 billion, with total assets recorded at TRY 65 billion, and the net profit of the sector was TRY 1.8 billion.

As of the end of 2021, the factoring industry, in which 54 companies affiliated with the Association of Financial Institutions (FKB) operate with a total of 350 branches, employs 4,026 people.

The factors that are evaluated to affect the global economic growth, which returned to its pre-pandemic course in 2021, are listed as geopolitical developments, the course of the pandemic and finally the monetary policies to be followed by developed countries. In the face of rising inflation on a global scale, it is estimated that there will be a tightening tendency in the monetary policies of central banks in developed economies. In addition, the fact that the latest Omicron variant is more contagious than previous variants, but lighter in terms of the burden on human health and to health system has led to the relaxation of epidemic measures in many countries, but the effects of possible new variants on the economy remain unclear. It is considered that the risks related to maintaining capital adequacy in the face of increasing inflation and exchange rate volatility in the Turkish economy and managing the asset/liability composition in terms of maturity, currency type and profitability dimensions will be hot topics.

With the ongoing digitalization in the banking sector as well as across the sectors, information technologies, cyber security and data protection risks have increased on a global scale, so the differentiation in the sector is shaped by the investments channeled in these areas.

The outlook of the global banking sector is overshadowed by the fact that half of the banks cannot meet their equity costs. There is a chance that banks will perform reasonably but not exceptionally in the coming years. Three macro factors -interest rates, government support for economic recovery, and the way banks manage excess liquidity- will determine the future of the industry. Regardless of the macro scenario, however, banks’ business models remain extremely liquid and capital-intensive, with balance sheets less attractive and less relevant to monetization of incomes than institutions focused on credit creation. Finally, the pandemic has accelerated digital transformation and has given fintech and other digital players the opportunity to consolidate their significant advances in financial services.3