December 2009 saw Turkey’s long-term foreign currency issuer default rating upgraded from a BB- to BB+ by a major ratings agency based on the relative resilience shown in response to the global financial crisis, as well as the easing of acute constraints related to inflation, external finances and political risk. Agency officials maintain that the rating increase is likely to trigger further inflows of portfolio investments into Turkish assets and will pave the way for investment-grade ratings for Turkish corporations, subsequently diminishing the external financing cost for companies.

Despite putting some stress on the country’s economy, the global financial crisis did not trigger a crisis in Turkey’s balance of payments. In contrast to previous shocks, Turkey has been able to implement counter-cyclical fiscal and monetary policies without an exchange rate crisis, and interest rates have fallen to single digits for the first time in the history of modern Turkey. The government stepped up borrowing in the domestic debt market at record low yields and issued USD3.75 billion in Eurobonds.

Turkish banks posted higher profits this year as falling interest rates boosted the value of bond portfolios and widened the margin between loans and deposits, while higher profits simultaneously lifted Turkish bank shares. Indeed, Turkey’s resilience reflects its strong banking sector, which is well capitalised and has a healthy loan/deposit ratio of 80%. Debt tolerance and sovereign ratings have also been supported by high GDP per capita, high levels of human and physical capital, and an overall favourable business climate. Turkey’s banking sector has proven much more durable than many of its developed and indeed developing market peers.

At an Istanbul press conference in October 2009 the Minister of Economy, Ali Babacan, presented the outline of a project to promote Istanbul as a regional financial centre, with eventual aims to go global. Based on a report from the Banks’ Association of Turkey the Minister of Economy emphasised that Istanbul’s potential as a financial centre is dependent on various factors, including political and economic stability as well as the reform of the regulatory framework. He stated that the Turkish government is endeavouring to institute a legal framework with a more simplified tax system, in line with international standards.