Turkey : Non-Bank Financial Institutions and Capital Markets Report

Abstract

Longstanding macroeconomic instability,
 and inflation in Turkey, have discouraged investment in
 financial assets, and a persistently high public sector
 borrowing requirement has crowded funding for the private
 sector. Notwithstanding, the Government's ongoing
 stabilization, and structural reforms, are improving the
 prospects for the development of financial services, though
 a series of policy issues should be addressed. This study
 identifies such issues, and formulates recommendations to
 better address them. Chapter I outlines the advantages of a
 broad based, diversified financial services industry, lays
 out the evidence of a clear correlation between financial
 system development, and per capita income, and, analyzes the
 outlook for such financial services industry over the next
 five years. Chapter II, in addressing the mobilization of
 savings, describes the extent to which macroeconomic
 uncertainty, chronically high inflation, and ill-suited tax
 policies have driven significant savings into real estate,
 gold, and overseas bank accounts. Recommendations suggest
 the development of a tax system that creates a level-playing
 field for investment assets, encouraging investments in
 longer-term/risk-based instruments, among others. Building
 an institutional investor base is addressed in Chapter III,
 where key issues are identified for developing the
 insurance, private pension and mutual fund industries.
 Chapters IV, V, and VI describe current developments of the
 equity, debt and derivatives markets, focusing on best
 practices to further develop venture capital, and, how to
 strengthen, and improve corporate governance, accounting and
 auditing standards. Finally, the need to rationalize the
 atomized oversight structure is recommended, where
 regulatory agencies should be responsible for supervising an
 increasingly integrated financial services industry, in
 addition to considerations on developing a holding company
 regime for financial, and mixed conglomerates.