Central Bank Governor Murat Çetinkaya Meets The Real Sector for The First Time at The ICI Assembly

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The ordinary assembly meeting of Istanbul Chamber of Industry (ICI) was held on September 28, 2016 under the main theme "The Importance of a Finance Vision that Supports Production and Real Sector for a New Page in Our Economy and Industry" at Odakule Assembly Hall. The September Assembly, which was closely followed by press members and led by the ICI Vice President İsmail Gülle, hosted Murat Çetinkaya, Governor of the Central Bank of the Republic of Turkey (CBRT). Murat Çetinkaya addressed the real sector for the first time at the ICI Assembly since he took office in April.


Murat Çetinkaya,
Governor of the Central Bank
of the Republic of Turkey

In his speech at the ICI Assembly, Çetinkaya stated that the CBRT would seek to better understand and enhance the interaction between the real and financial sectors, which has to be a matter of discussion in detail, both globally and nationally, in the upcoming period. Çetinkaya also noted that it was very important to design financial intermediation in a manner that would support efficient production and strengthen the transmission mechanism.

Highlighting the importance of price stability, Çetinkaya said: "In an economy with price stability, domestic savings in domestic currencies are made with longer maturities, thereby decreasing maturity mismatch and financial volatility. In addition, establishing trust in the purchasing power of the domestic currency reduces the tendency for dollarization, and may accelerate the process of transferring savings into the formal economy. All these factors are important for creating healthy and sustainable financial resources."


From left to right: Emrah Şener, Dept. Governor of CBRT; Erdal Bahçıvan, ICI Chairman, Murat Çetinkaya, Governor of CBRT; Murat Uysal, Dept. Governor of CBRT; Hasan Büyükdede, ICI Vice President of Assembly

Highlighting the fact that a stable relationship to support production was yet to be established between the financial world and the real sector, ICI Chairman Bahçıvan said: "Industry should be the sector we should cherish in our new story for a production-oriented economy. The real sector should be able to access cost-effective investment financing options to ensure sustainable growth."

Bahçıvan added: "Credit volumes showing no increase despite the Central Bank interest rate cut is also a matter of concern. We expect all banks to decrease interest rates. The banks also need to be encouraged for bond issuances with maturities of 5 to 10 years. Central Bank refinancing long-term credits by the Development Bank would also contribute greatly to the industry".


İsmail Gülle,
ICI Vice President of Assembly

ICI Vice President of Assembly İsmail Gülle delivered the opening speech at the Istanbul Chamber of Industry's ordinary assembly for September. The highlights of Gülle's speech on the agenda items are as follows:

"Last Friday, the credit rating agency Moody's downgraded Turkey's rating to below ‘investment grade’. However, the debt auction by the Treasury just after this downgrade saw a demand almost four times the projected amount, and the costs remained below expected levels. This alone clearly indicates that the said decision is based on political grounds, and does not reflect our country's economic situation. I believe that certain key risks to the global economy need to be closely followed in the upcoming period. Foremost among such risks are terrorism, the refugee crisis, and lack of international cooperation and coordination, as well as political risks such as the presidential elections in the U.S. and Brexit. From an economic point of view, risks related to the Fed, European banking system and Chinese economy are set to leave their mark in the coming year. Our country is struggling to produce, create jobs, and make its way through an environment of global competition under these challenging global conditions. At the moment, we are certainly satisfied with the country's steady growth after the global crisis."

Gülle, ICI Assembly Vice President, then invited ICI Chairman Erdal Bahçıvan to take the floor and deliver his speech on the main agenda of the Assembly. Bahçıvan commenced his speech by highlighting the particular importance and meaning of the ICI Assembly meeting, in the sense that it marked the first meeting in which Murat Çetinkaya, Governor of the CBRT, met real sector representatives after he took office. Bahçıvan also criticized the latest decisions of S&P and Moody's on Turkey's credit rating as irrational, subjective, and not reflecting the country's macroeconomic facts, and argued that the decisions would harm the reputation of these institutions.


Erdal Bahçıvan, ICI Chairman

Stating that Turkey would continue to move forward with determination, Bahçıvan emphasized that the government would not hesitate to make structural reforms, and measures to be taken by the Central Bank and economic management of the country would limit the negative impact of the credit rating downgrade. Bahçıvan also stressed the importance of the Assembly for the industrialists, as it would discuss Turkey's new financial vision to improve production and real sector, under the roof of the largest and most powerful industry chamber of the country.

Bahçıvan also emphasized that the relationship between the financial world and real sector had weakened during the last global crisis, and the financial world now gravitated towards short-term profits in international financial markets. Bahçıvan suggested a new approach based on production economy as the only solution to this issue. Emphasizing that the first step to allow the production economy to regain its power was to strengthen its financial aspect, Bahçıvan stressed that the necessary cooperation between the real sector and financial world had not yet been established despite global efforts.

Reminding that the manufacturing industry was the biggest driver of growth, Bahçıvan noted that the industry should be the sector they should cherish in a new story for a production-oriented economy. The real sector should be able to access cost-effective investment financing options to ensure sustainable growth, Bahçıvan said.

Bahçıvan stated that the Central Bank's steady and sustainable policy on interest cuts were encouraging for the transition into a production economy, and called all banks to reduce their interest rates in light of these reductions, which were made in a manner to maintain market balance. Another concern was the stable credit volumes despite the Central Bank's interest rate cuts according to Bahçıvan, who noted that banks hesitance to provide loans had brought about a weak outlook in credits.

Bahçıvan noted that the reductions in required reserve ratios had decreased the economic players’ borrowing costs and delivered a positive impact on economic activity, and added that such reductions helped increase banks liquidity which could then be extended as loan. Bahçıvan expressed his hope to see industrial enterprises make the best of such opportunities. Bahçıvan mentioned that since July 15, both the business and the industry acted with awareness and responsibility to support the economy and the government, and called all relevant actors to do the same.

Bahçıvan continued his speech as follows:

"We are very excited about the steps the government has recently taken on the next-generation Development Banking, which was first brought forward by the Istanbul Chamber of Industry. In the search of new approaches to Development Banking, the Central Bank can play an important role. We have an excellent example at hand: Eximbank. The Central Bank and Eximbank have been maintaining a stable refinancing relationship during the recent years to support exports. The Central Bank is providing funds through Eximbank for rediscount credits. We are aware that the Central Bank played a part in the praiseworthy achievements of Eximbank in the recent years. Similarly, Central Bank refinancing long-term credits by the Development Bank would also contribute greatly to the industry. There are many global examples of this. We see the central bank in Korea support the country’s development bank by buying bonds. Why should we not do the same?"

Arguing that the banking system was unable to create long-term funds and urging action to change it, Bahçıvan noted, “For example, banks also need to be encouraged for bond issuances with maturities of 5 to 10 years. Long-term corporate savings such as private pension systems, the success of which we watch with appreciation, should invest in such bonds. Meanwhile, the banks should use the resources generated from selling bonds in meeting their long-term financing needs. In order to promote such mechanism, taxes and reserves should be implemented effectively.”

Calling the Central Bank to take into consideration the levels to support a production economy while regulating monetary policy tools, Bahçıvan stressed that the latest cuts on interests and required reserve ratios as well as regulations on credits and credit cards did not support commercial loans to the same degree as consumer loans. He also stressed that the real sector needed fund injections that would pave the way for investments as well as production in order to reinvigorate the economy, an endeavor that required innovative solutions and a selective approach rather than a simple one in regulating the tools of monetary policy for incentivizing production. Bahçıvan added that reserve requirements for production-oriented credits could be rewarded with a coefficient. 

Noting that the Central Bank’s main mission of preserving price stability was very important for the industrialists as it would allow them to see ahead, Bahçıvan called Central Bank’s efforts to maintain inflation outlook while following growth-oriented policies as commendable.

Bahçıvan continued his words as follows:

"Communications policy is another item in the CBRT’s agenda. In a period with very limited predictability in the global economy, efforts to create an environment where the real sector could see the road play a crucial role. At this point, we are delighted to see the CBRT’s steps towards enhancing the communications policy. Mr. Governor's attendance to this meeting is a concrete step towards reinforcing the relationship between the Central Bank and the real sector.  There needs to be a sustainable dialog between our institutions for the future of the manufacturing industry.  Adopting such an approach, the ICI and Central Bank should create working teams that will organize regular meetings in the future. The dialog should go beyond just an exchange of ideas, and pave the way for structural and sectoral reforms by leveraging the rich pool of data of both institutions. I believe that such work would serve as a model for other countries as well."

Following Bahçıvan’s speech, Murat Çetinkaya, Governor of the Central Bank, took the stage to give his speech. Çetinkaya said that the CBRT would seek to strengthen the relations between the real and the financial sector, and that the meeting is a concrete step towards achieving this objective.

Central banks across the world had played a historic role in the eight years following the global crisis, according to Çetinkaya, adding that they have been making great efforts to support to the economy using the entire range of monetary tools at their disposal. Çetinkaya emphasized that quantitative easing is not sufficient to achieve stable growth on its own, and factors such as economic reliability, healthy financial channels and distribution of income have proved once more to play much more important roles for investments and stable growth in the medium and long run.  He added that a strong global consensus was emerging for adopting a different approach in economic policies, yet an agreement on how it has to be handled was yet to be made.

Çetinkaya expressed that global economic conjuncture affected economy through three different channels, namely foreign demand, capital flows, and commodity and import prices. Stating that these three channels could be decisive for growth, inflation and current account balance dynamics, particularly in developing countries, Çetinkaya said that the global liquidity conditions and low commodity prices in the recent years have been relatively positive developments for Turkey, yet weak foreign demand continued to limit export and economic activities. 


Murat Çetinkaya,
Governor of the Central Bank and
Erdal Bahçıvan, ICI Chairman

Highlighting that financial conditions have shown a significant tightening in the recent years, Çetinkaya stressed that this situation persisted in interest rates for deposits and loans, as well as loan standards. Noting that financing prices, including fees and commissions, were still quite high for SMEs, Çetinkaya added that certain other conditions for financing, such as maturity and collaterals, were also revealing a tightening. 

Noting the interaction between the real and financial sectors as a matter that needs to be discussed in detail globally and nationally in the upcoming period, Çetinkaya argued that it was very important to design financial intermediation in a manner that would support efficient production and strengthen the transmission mechanism. Adding that they focused on three main issues regarding the structural concept of financial intermediation, Çetinkaya said: "The first objective is to expand financial intermediation into all segments of society and in a balanced manner, the second is to achieve reasonable financial conditions and prices, and the third is to allow financial intermediation to contribute to production and efficiency. In short, qualitative development of the credit market is very important for the interaction between the financial sector and real sector".

Highlighting the importance of price stability, Çetinkaya said: "In an economy with price stability, domestic savings in domestic currencies are made with longer maturities, thereby decreasing maturity mismatch and financial volatility. In addition, establishing trust in the purchasing power of the domestic currency reduces the tendency for dollarization, and may accelerate the process of transferring savings into the formal economy. All these factors are important for creating healthy and sustainable financial resources."

Çetinkaya stressed that, in order to achieve price stability, they endeavored to make the best of the monetary tools at hand while raising public awareness through strategic and structural cooperation with stakeholders with regard to price stability. Highlighting the importance of a joint effort by all actors, Çetinkaya noted that the restructured Food Committee served as a great example for holistic and joint efforts. Noting that the Committee, established with the purpose of limiting the negative impacts of food prices on general price stability, has accomplished significant achievements so far, Çetinkaya expressed that a significant public awareness was raised on structural matters relating to inflation, and a comprehensive technical cooperation was established through business-to-business communication channels.

Stressing the concrete steps taken in recent years towards strengthening their relationship with the real sector, Çetinkaya noted that the Central Bank pays regular visits to companies in different cities of Turkey in order to keep track of economic developments and to strengthen its links with the real sector. He also added that they had organized productive discussions with many ICI member companies. Çetinkaya said: "During these discussions, the Central Bank managers and experts seek to identify the structural problems in the sector as well as report banks' activities and expectations in order to feel the pulse of the economy. Results of such efforts are important source of information for us to keep track of the Turkish economy. For instance, these discussions will help us in evaluating the impact of national developments to the economy, learning about the real sector's decisions on investment, production, export, employment and debt in good time or determining the impacts of company-related regulations. The next step is to turn this determination into concrete policies by sharing the information and inferences, obtained from these negotiations, directly with policy makers and the public".

Çetinkaya said that ICI's public data and reports were beneficial for their economic analyses and the ICI's Top and Second 500 largest industrial enterprises surveys reveal important information regarding company indebtedness and debt composition. He added that such information allows for making inferences regarding companies' debt trends as well as debt rate and maturity structure. Regarding the companies’ tendency to take on more long-term debts in Turkish lira in the recent years, Çetinkaya noted that the continuation of this tendency and ensuring that companies utilized more of their equity would be beneficial in terms of financial stability.

The meeting continued with the speeches on the current agenda by the Assembly Members and concluded with a questions & answers session with Çetinkaya.