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‘The world can learn from Turkey’s SMEs’ finance experience

Interview - April 30, 2015

As CEO of Türk Eximbank, the Turkish government’s main export incentive instrument, Mr. Hayrettin Kaplan explains why his country is putting so much emphasis on SMEs in the year of its G20 Presidency.

MR. HAYRETTIN KAPLAN, CEO OF TÜRK EXIMBANK
MR. HAYRETTIN KAPLAN | CEO OF TÜRK EXIMBANK, TURKEY

This year there is ongoing conflict in Turkey’s neighbours, a better outlook for the Eurozone, low oil prices and a strong dollar. How do you view the outlook for Turkey’s exports this year and how will the current state of global affairs impact on Turk Eximbank’s lending strategies?

If we go a little bit back, Europe had witnessed difficult times after the financial crisis. Previously, more than 50% of Turkish exports went to Europe so Turkish exporters faced a serious crisis. However, every crisis creates an opportunity. The government immediately took some measures in order to diversify Turkish exports geographically. As a result, Turkish exporters seek new markets all around the world. The easiest markets are always your neighbors so we started to export more to Iraq, as well as Russia, Ukraine, the Middle East, Africa and recently to the US. The US was not a market that was preferred seriously owing to the distance before the crisis in Europe, but now it is one of our fastest growing markets, even though the base is small.

Nevertheless, Europe is still an important market for Turkey, as recently we have seen geographical and geopolitical tension build up around us, such as Syria, Iraq and Russia. So our exporters focus has started to shift towards Europe again as we observe serious signs about a recovery in the region. Africa is also important but just like the Middle East, Iraq and Russia, it has been affected by geopolitical risks and low oil prices.

Turkey has a target of reaching $500 billion of exports by 2023. How does Turk Eximbank support Turkey's exporters both in terms of helping them to access to new markets and to improve the quality and innovation in their products?

In helping exporters to diversify their markets, our main supportive instrument is export credit insurance. 5 years ago, before the European debt crisis, our export insurance product was not as much in demand by our exporters because they thought that Europe was always safe and that there were no payment risks. Nonetheless, with the crisis in Europe, things started to change and our exporters risk awareness increased as they started to accept that even Europe is not a safe haven anymore.

At the same time, we started to increase our marketing efforts for this product. Credit insurance is not like cash loans in which exporters get direct benefit. Therefore, we have to go directly to the exporters and explain the benefits of using and costs of not using the facility. We have also relocated Turk Eximbank’s head office from Ankara to Istanbul in order to be closer to the exporters, as nearly half of the exports are from Istanbul and 60% if the surrounding regions are taken into account.

We also realized that we have to be more proactive in devising new products and test whether they fulfill the exporters’ needs or not. I think we were quite successful; in 2010 our volume of export credit insurance was around $4.5 billion and last year we reached $11 billion. This shows that exporters’ awareness of the market risks has increased and also our marketing efforts paid off. 

SMES are one of the main priorities for the Turkish G20 Presidency. What specific measures does Türk Eximbank have in place to support the growth of Turkey’s SMEs and help to access the global value chain?

SMEs were always our first priority. For instance, in our credit programs for SMEs, we are offering lower finance costs compared to bigger companies. We have also designed a new post-shipment credit program especially for SMEs. As we ask a bank guarantee for the loans we give to our exporters, under the mentioned new program, which I consider very innovative, we use our credit insurance policy as a guarantee. By this way we can provide finance to SMEs without asking any additional collateral. We are financing this credit program through the central bank rediscount facility at LIBOR+0.75, which is really low. In total exposure, this facility’s share is not high but it provides effective support to SMEs. When you look at large export companies, their exposure in our total assets is indeed large but you should consider that the loans to SME’s are much productive and effective in terms of export capacity creation, even if the amount is small. As a matter of fact, our customers’ 70% is SME’s, which we are proud of.

When we interviewed B20 Executive Committee member Erdal Bahcivan, he said: “We know that Turkey can’t maintain its competitive edge via classic borrowing methods.” How is Turk Eximbank using financial innovation to better respond to the needs of Turkish exporters?

Our approach is to meet the exporters in main cities like İstanbul, learn their requests and whether our existing products meet their needs. Three years ago we realized that there was a demand for long-term finance for investments to build new export capacity. Therefore we started to provide long-term finance to our exporters by issuing Eurobonds thus the share of long-term finance in our loan portfolio went up to 24% in the last 3 years.

What differentiates us from the rest of the market is that, because we are not a profit-driven organization, we are charging just a small margin so we are providing low-cost finance, including long-term loans. Hence we face a huge demand and in 3 years the share of medium- and long-term loans in our portfolio increased considerably, and this continues as Turkish exporters want to increase their export capacity.

Lately, we had the chance to finance a Turkish textile company, acquired a Dutch brand under our Trademark Credit Program. We want more companies to benefit from this program because this will help the target of increasing the value-added embedded in the exported products. The current economic situation in Europe creates new opportunities for our exporters, and Turk Eximbank encourages Turkish firms via convenient long term program.

Since Turkey is the G20 President this year and is trying to stimulate global trade across the world in an inclusive manner, to what extent do you think Turkey’s export-led growth can be seen as a model for other G20 countries and emerging economies to follow?

I was in Jordan a couple of months ago where there was a conference about SME finance. The discussant from AFC who gave a presentation about SME finance globally, mentioned 10 banks that are very successful; 3 of them were Turkish banks.

I think that, as Turkish banking system, we developed a very good financial infrastructure which supports SMEs. We even have some banks that are very much specialized in SME finance. 2 years ago the Central Bank and Banking Regulation and Supervision Agency together with the government took some measures to restrain consumer credits. That means, now Turkish banks have more resources to channel to SME finance. The macro-prudential policies taken by the government are also pushing banks to finance more SMEs, so the banking system is more specialized with the help of policy-makers’ actions. In that sense Turkey is very successful. 

Deputy Prime Minister Ali Babacan has said that the G20 Presidency is an opportunity to change perceptions about Turkey internationally. What side of Turkey would you like people to see during this important year?

We have already stated that geographic location is important. Turkey is more than just Turkey: there is the Middle East Turkey, the Caucasus Turkey, the European Turkey… Turkey is multicultural as we have been influenced by the West, by the East and by Africa. If you have lived here for some time you start noticing this. Our location gives us this multicultural dimension which is reflected in our industry as it is well-diversified, and it is reflected in the people's perception and understanding of different cultures.

Turkey has become a global country; you see our exporters going out into the world and innovating. Regarding tourism, we are receiving tourists from all around the world, especially our neighbors like Europe, Russia and the Middle East. I think Turkey is not a Middle Eastern or a European country, we have this multicultural structure which I think makes Turkey a multidimensional country. 

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