Don’t underestimate Turkey says HSBC

Istanbul is hoping to become the world’s next major financial centre

Most people have no idea how good Turkish wine is, according to Martin Spurling, chief executive of HSBC Turkey. With over 1.5 million acres of land devoted to vines, it is a little-known fact that the  country is the world’s fourth producer of grapes. The same can be said for Turkey’s ambitious plans to develop Istanbul as a major international financial centre.

“Turkey’s brand is nowhere near as good as it should be,” said Spurling, addressing the Turkish-British Business Council’s conference in London this week. “Turkey doesn’t have the brand reputation of Asia as an investment hotspot, and I think it deserves it. I told people I’m going to Turkey, and they said, “Really? Turkey? But we thought you were doing well.” They didn’t realise that Turkey is actually one of our top five markets at HSBC. Istanbul is growing fast.”

Spanning the European and Asian continents, Turkey has a similar climate to Greece and Italy. But it is the business climate that gripped delegates at the event in London. The event was part of an ongoing collaboration project between representatives of the City of London and the Turkish government and financial services sector, which included representatives such as Bekir Safak, acting chairman of the Capital Markets Board of Turkey, Hakan Binbasgil, chief executive at Turkey’s Akbank, Mark Wilson, chief executive at Aviva Investors and Alderman Roger Gifford, Former Lord Mayor of London.

“Turkey’s strong civil and legal codes are based on solid European examples Switzerland and Germany,” added Cyrus Adralan, vice chairman at Barclays. “Turkey and Istanbul has a number of assets. Domestic banking sector was unaffected by the crisis. Market cap at Borsa Istanbul is well over $300 billion today. The exchange partnered with Nasdaq OMX and has a strong SME base. Istanbul can be the dominant regional centre in the region it’s in, and a clear strategy focusing on areas of strength and drivers of competitiveness will only accelerate that process, as Dubai’s historic growth has shown.”

There is little question that Turkey’s economic growth has done well over the last decade. The country’s GDP tripled since the year 2000 to reach $789.3 billion last year, according to figures provided by the World Bank. At the same time, the country’s pension market has grown from $2 billion dollars in 2003 to $14 billion today, while participation has grown from a tiny minority to 4 million people. These factors have helped encourage foreign investment, especially in Istanbul. It is here that the government’s plans to establish a global financial centre are based.

“The middle class is growing, and that’s a great opportunity for everyone,” said Hakan Binbasgil, chief executive at Akbank Turkey. “While GDP per capita has now passed the $10,000 mark, we still have 19 million unbanked people in Turkey, so there’s plenty of room to keep on growing. At the same time, Istanbul has 22% of Turkish GDP and 50% of Turkey’s foreign trade. Borsa Istanbul sees 60% of its activity from foreigners, and there’s a lot of infrastructure initiatives – a new tunnel under the Bosporus, the largest airport in the world, and a new bridge. Turkey really is in the middle between London and the Far East. It’s a great opportunity.”

Established in 660BC by the semi-legendary Greek king Byzas, Istanbul has been known by several names through its history, including Byzantium (after the king), Constantinople (capital of the Roman Empire) and, since 1923, Istanbul. In an echo of its past as the capital of two world-spanning empires, the city is now marketing itself as a natural crossroads between Europe, the Middle East, Africa and Asia. The merger of Turkey’s various exchanges, including equity, derivatives, fixed income, gold and precious metals derivatives under the Borsa Istanbul brand in April was a key step towards that goal.

“Location is important,” said Spurling. “Turkish airlines connect Istanbul with 60 cities within four hours. That helps Istanbul as an international financial centre. It is also well-positioned to benefit from the ongoing and historic global shift in growth from the traditional developed economies of the north and west towards the south and east. The key decision now is what kind of centre does Istanbul want to be? New York and Shanghai draw in international finance for use domestically, whereas Hong Kong and London are financial exchanges. Istanbul has elements of both. Islamic finance, for example, could be a big chance for Istanbul, especially as it grows in the Middle East.”

Another important component of growth emphasised by panellists at the event in London was the role of law and order, and appropriate regulation. Turkey has implemented several key reforms to its laws and regulations in the last two years. In October 2011, it introduced a new Code on civil procedure. This was followed by the Turkish commercial code in July 2012, a code on obligations the same month, and a revised Capital Markets Law in December 2012.  “London and New York have become famous based on legal system,” said Spurling. “The Turkish legal system needs to keep growing to support that financial centre. We’ve seen transparency growing and that’s a good thing.”