Stand-up show at Davos

On Jan. 17, while the day was ending in Istanbul, the offices of deputy general managers of private banks in charge of fund management (treasury) were raided by controllers from the Turkish Competition Authority (RK). In the computers of executives, their e-mails and their correspondence in the Bloomberg system that provides financial information and news were searched by these three words, “fixing, swap and exchange.” News outlets started posting news stories that  Turkey’s Competition Authority (RK) has launched a preliminary investigation into more than 20 banks over possible violations of competition rules in the deposit, exchange and intermediary services.

A new weight was being added to the already existing pressure that has long been over the banks and their executives. In their search, the inspectors were using these words like a sword of Damocles with the implication that the banks were cartelizing in their foreign exchange operations.

In an atmosphere where the “Big Brother is watching you” it is illogical to assume that banking staff would form a cartel and do this kind of business through written correspondence and easily accessible records.

At the time when inspectors were raiding the banks, I witnessed several bank executives leaving their WhatsApp groups they were members of in their private phones. The reason is that in this “witch hunt” they could have been made to face all kinds of accusations. 

It is not normal that an independent institution acts like the “stick” of the government. Also, this is not a first. At the beginning of 2019, when fruit and vegetable prices hiked because of cost increases due to the sharp rise in exchange rates the RK was again activated and super market chains were forced to make sales that caused them to lose money. It was because they felt the “threat stick” of a possible investigation. In 2019, on February 4, consumer price index was announced; on February 7, the competition authority had decided to open investigation for 23 market chains to determine whether they had been involved in any anti-competition activities. Market chains, with fear, started selling certain vegetables at a very low price. We still do not know what the result of the investigation is.

As a matter of fact, at the same period, in the first six months of 2019, Ankara dictated the banks which pricing cap they cannot exceed in deposit and credit operations. This was the time when banks were forced to act like a cartel by the government but the competition authority was “hibernating.” Because of this situation, several account owners started leaving the Turkish Lira opting for foreign currencies. Well, the same RK, today, is launching an investigation on “what is happening in foreign exchange?”

Well, why is Ankara giving a new message of “threat” now with this raid of the inspectors to the banks?

As a matter of fact, all the bank executives are aware what this is signaling. Because for some time, while public banks have opened their loan channels to full blast, figures showed that private and foreign banks did not have the same appetite. Ankara, on the other hand, had increased its pressure on private banks to turn on their credit taps.  

On the second half of 2019, with the contribution of public banks, credit loan volume grew, but private banks still did not have an appetite for loans. This was despite the fact that interest rates had been lowered more than 12 points in the past six months by the Central Bank and despite incentives for those banks that had improved lending.

Private banks know very well what problem they are facing; their lending portfolio has rapidly deteriorated with the economic crisis. The deterioration continues. They are also aware that a certain portion of loans are being “floated” under the name of “restructuring.”  

Those public banks that have been “given an assignment,” are covered, one way or another, the equivalent of their duty losses from the central budget. There is no such a “tap” between private banks and their shareholders and investors.

Nowadays, two things are happening. There is pressure to private banks to “open their credit taps wide open,” while the private sector is pressured to “make investments.” 

On Monday, Treasury and Finance Minister Berat Albayrak held an evaluation meeting for 2019. He said he heard of the investigation launched by the RK “from the markets;” despite the fact that institutions are no longer independent and no institution can take a step without the consent of Ankara’s Beştepe Palace.

Speaking at this evaluation meeting, Albayrak said at the 2019 balance sheet of certain banks, serious profits were recorded and the year was a good year for private banks. As of 2020, private banks should be a part of this system in a coordinated and synchronized way and they should also change, he said. “I am saying this: Will it be plaza banking or market banking? Are we going to go out to the field or are we going to gaze into the sky at the top of the high-rise buildings? This should be a period when functional banking will be a part of the transformation by going out on the field, going to the real sector and the markets.” He was expressing publicly in a very soft tone what was wanted from private banks. 

Another indicator of the “pink lies” Ankara has been drawing about economy is the issue of the independence of the Central Bank.

The peak of this was at the World Economic Forum at Davos. In a panel attended by Albayrak, the moderator who seemed to be aware of what was going on in Turkey asked that there were question marks about the independence of Turkey’s Central Bank. Albayrak responded, “Central Bank is as independent as the Fed.”

When I heard this, I thought this sentence could have only been uttered in a stand-up show. Or maybe, we have moved so much fast forward that we make fun of the international public. 

The essence of the matter is this: The government has destroyed institutions and rules in Ankara. The same government removed the governor of the Central Bank. The new governor lowered interest rates more than 12 points. The Central Bank is made to find profit generating ways with forced methods which then is transferred to the budget. Questionable methods are found to prevent the depreciation of the Turkish Lira due to the escape from the lira. The foreign currency reserves of the Central Bank have melted, but they are able to hide this. All of this creates a [false] self-confidence. With this mood, Berat Albayrak is able to say the Turkish Central Bank is as independent as the Fed, the US Central Bank. 

Calling this economic regime a “command economy” would be unfair to the regimes that have been structured as command economies. In a command economy, there is an integrity and logic. This regime can only be called “directionless command economy.”