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Turkey’s Banking Supervision Takes Step in Right Direction, but More Improvements Needed: Report

February 8, 2017

The Turkish banking sector has made significant strides in improving its supervisory framework since the last assessment in 2011. However, according to a new report, there are still areas that require attention from the Banking Regulation and Supervisory Agency (BRSA) to ensure effective banking supervision.

Progress Made by BRSA

The BRSA has taken several steps to strengthen its risk management and corporate governance requirements:

  • Risk Management: The agency has enhanced its forward-looking component of assessments, which will help identify potential risks more effectively.
  • Corporate Governance: The BRSA is now demanding recovery plans and group resolution plans from banks, demonstrating a positive development in promoting sound banking practices.

Areas for Improvement

Despite the progress made by the BRSA, there are several areas that still require attention:

  • Legal Provisions: The report highlights the need to address legal provisions that undermine supervisory independence.
  • Risk Assessment Focus: Supervisory inspections and follow-up should have a deeper focus on risk assessment to ensure effective supervision.
  • Early Intervention: The BRSA needs to increase its ability to act at an early stage to address unsafe and unsound practices.

Challenges Facing Turkey’s Banking Sector

The report notes that while the banking sector has made progress in recent years, it still faces challenges related to:

  • Credit Risk: The sector remains vulnerable to credit risk, which can have significant implications for financial stability.
  • Market Risk: Market risks, such as changes in interest rates and currency fluctuations, continue to pose a challenge to the banking system.
  • Public Financial Management: Effective public financial management is essential to maintaining confidence in the banking system.

Conclusion

While Turkey’s banking supervision has taken a step in the right direction, there is still much work to be done to ensure effective supervision and protect the stability of the financial sector. By addressing these areas for improvement, the BRSA can help maintain confidence in the Turkish banking system and promote economic growth.