January-December 2013


Macro and industry trends

The macroeconomic situation in Europe has continued to improve throughout the quarter, although still at a slow pace and with some variance across the countries. Against this background, and given the environment of low inflation, the ECB has cut interest rates to all-time lows in order to speed up the recovery.

With respect to its financial system, the political leaders have continued to make progress toward the banking union. On October 23, the ECB released information on the comprehensive assessment process of the balance sheets of the nearly 130 banks it will supervise in the second half of 2014. The results of this process will be of great importance in allaying doubts about the solvency of the European banking system, recovering investor confidence and quantifying the problems inherited from the crisis, which will have to be resolved at national level.

In Turkey, economic activity has remained strong, despite the adverse factors in the quarter. The macro scenario has been affected by renewed volatility in the financial markets, influenced by the Fed’s withdrawal of the monetary stimuli. In addition, there was further uncertainty in the internal political landscape. As a result, the yield on the Turkish 10-year bond has once again exceeded the 10% mark, which has made the average cost of funding for the system significantly more expensive but has not prevented the Turkish lira from depreciating further. Against this background, both the government and the Central Bank of Turkey (CBT) have adopted a policy aimed at encouraging saving and stimulating the industrial sector through a series of measures designed to slow down the growth of consumer finance and promote funding for SMEs and exports.

In this context, the Turkish financial sector maintains sound levels of capitalization and a high level of profitability, although the recent toughening of monetary policy measures and the interest rate movements are putting downward pressure on the margins of banking institutions. In recent months, the year-on-year rate of growth of lending seems to be slowing down, although it remains at levels above 20%. Gathering of customer funds continues to improve, but at a slower pace than lending. Lastly, the sector’s asset quality does not seem to be worsening and the NPA ratio remains stable.

In China, the latest available figures confirm a recovery in the rate of GDP growth (up 7.8% year-on-year in the third quarter). Worth mentioning in the quarter was the audit conducted on local financial institutions, as well as the plans announced by the Communist Party at its last plenary session to liberalize interest rates, open the country up to foreign banks and introduce a deposit guarantee scheme. The strong growth in lending has continued in recent months, despite the government’s efforts to limit the risks of high debt, which has led to moments of liquidity tension in the interbank market. There has also been a moderate upturn in the NPA ratio, particularly in small and medium-sized banks, in which small companies have a greater weight (and which are therefore more vulnerable to a less favorable economic environment).

Lastly, and in order to provide a better understanding of trends in business and earnings in the area, the figures below on percentage changes refer to constant exchange rates, unless indicated otherwise.