Monday, March 21, 2011
Below is my Hurriyet Daily News & Economic Review column for this week, which you can also read at the Daily News website. As for the title, I was loosely inspired by a documentary I had watched long a ago.
BTW, the introductory paragraphs are inspired from here. Obviously, unlike some colleagues, I would mind if I am accused of plagiarism, so I wanted mention this right away. But on the contrary, I wanted to pay homage to a great movie, which you should see tonight if you haven't already, and the late Ulrich Muhe- such a great actor, I saw his other stuff after the movie; I would have never known him if it were not for this movie....
As for the addendum, I talked to quite a few banking sector professionals for the column, and they too are complaining about this issue. They shared great anecdotes and stories with me, and it would be a pity if I did not share those with anyone else. Therefore, I plan to write an extensive follow-up piece tomorrow for Roubini and my blog, where I will make use of all the quotes.
But I am still keen to collect more quotes, so if you have something to say/share about this issue, please feel free to add it on as a comment to the column, to this post or as an email to me. Use a nick if you want to be anonymous, but I am keeping all my sources anonymous anyway, as I don't want anyone getting fired for speaking ill of their bank with me. And boy some people did really speak out!!!
Anyway, on to the column:
The Turkish Statistical Institute’s grave-faced bureaucrats count everything, know everything.
And not only macro data that regularly find their way into your friendly neighborhood economist’s columns. For example, how many eggs were produced last month? 1.09 billion. How many books were published last year? 34,857. And how many telegraphs were sent abroad in 2008? Just one - and one telegraph was received from abroad.
But there is one statistic that probably causes even these paper-pushers pain: The suicide rate. On paper, this is one area where Turkey looks pretty good: Out of 100 countries or so that report this information, Turkey is 79th in terms of suicides per 100,000 people. But once you know someone who has committed suicide, this statistic takes on a whole new meaning.
At least, that was the case for me when my close friend’s father decided to take his own life after the bank from which he had taken a business loan unilaterally decided to charge him a higher interest rate following the 2006 crisis. At the time, I had found it hard to believe that banks could do that.
I guess one has to live it to believe it. I recently entered into negotiations to refinance a loan for my family business, which ended in an unconstructive deadlock, despite the word construction in the bank’s name. The lender pulled a huge fee out of its hat without giving any explanation as to how it was calculated.
Urged by my journalistic instincts, I began to inquire among my banker friends. It turns out that such fees are purely discretionary: They can be as high as 10 percent of the remaining amount of the loan, but could go down to as low as 2 percent after negotiations not much different from those in the covered bazaar.
Now, you don’t need to be Shakespeare to figure out that something is rotten in the state of Turkish corporate banking. And that is lack of regulation by the Banking Regulation and Supervision Agency, or BRSA. My friends in retail banking are absolutely terrified of the BRSA, but it seems the watchdog does not keep the corporate side on a tight leash.
On a macro level, this means that businesses asking for loans are faced with huge uncertainties: They have signed agreements strongly favoring the bank, which can, at will, change any part of the agreement and demand exorbitant fees. It also means that access to credit may not be as improved as the recent World Bank surveys claim.
Simply put, if you see your neighbor being squeezed by the bank, you’ll try to rely on your own funds or forego profitable investment opportunities if you don’t have the cash. This is especially important since the government is intent on capping credit growth at 25 percent, with dirigisme rivaling China’s if necessary. Then, the new loans would not necessarily be channeled to the most efficient uses.
It also means that the recent emphasis by the Central Bank and my esteemed colleagues on financial literacy is misplaced. It may be important for the retail consumer, but for corporates, financial literacy is not the answer. Look at me: I am as financially literate as anyone can get, but I still ended up with a huge refinancing fee despite sharing my “findings” with the bank.
If all this sounds like someone crossing over from capitalism to the Che-model, that is not the case at all. Regulation is not costless; it ends up making the regulated good more costly. But if the producer can exercise excessive power over the consumer, regulation is a must. As Mustafa Kemal Atatürk put it, "unless absolutely necessary, markets should not be interfered with. However, no market should be left entirely unattended."
It seems that the corporate banking sector is running completely amok in Turkey.