Banking in Turkey

Banking in Turkey is an important aspect of the financial system Turkey's dynamic economy. Banks handle the majority of money and capital market transactions and activity. Commercial banks make up the majority of Turkey's financial sector, accounting for 91 percent of overall financial sector assets as of 2020.

The beginnings of the banking industry can be traced to the 19th century with Galata bankers creating the first Ottoman bank. As of January 2021, there are a total of 48 banks operating with 9,880 branches in Turkey and 71 branches abroad. The total value of assets of the banking sector in Turkey amounted to more than $800 billion.

The so-called money-changers and Galata bankers were the first to engage in banking activities in the early 1800s. All quasi-banking activities were carried out by money-changers during this era, and the Galata bankers were largely ethnic minorities in Istanbul. Following the Crimean War, the Ottoman Empire's financial condition deteriorated, necessitating external financial assistance. During this time, officials from a number of foreign banks traveled to Istanbul with the intention of giving high-interest financing to the Empire. In exchange for their loans to the state, several Galata Bankers were granted powers to form banks during the Ottoman Empire's last decades. These bankers built the Ottoman Empire's first banks and expanded their economic dominance significantly. With their loan to the Ottoman Empire, bankers Jacques Alléon and Teodor Baltazzi were granted the privilege of creating a bank in 1847, forming the Bank-ı Dersaadet, the Ottoman Empire's first bank. Mayer Amschel Rothschild, a French banker, was also banker who got permission from the Ottoman Empire to open another bank. The Ottoman Bank (Bank-ı Osmani) was founded in 1856 and operated as the Central Bank until the 1930s, with its headquarters in London.

In 1863, a French stakeholder was added, and the bank continued to operate as a central, commercial, and investment bank under the name The Ottoman Imperial Bank (Bank-ı Şahane-i Osmani). The bank is considered as the first modern bank in the Ottoman Empire. The bank was granted powers to print money.

In 1920, İş Bank was founded with funds transported to Ankara by Muslim Indians who wished to help the Turkish government in their war with the Greeks. İş Bank, as the representative of capital in Ankara, competed with the Ottoman Bank and prevailed, becoming the moderator of the country's new financial system. After the Ottoman Bank, several banks owned by foreigners, opened over time. Because both İş Bank and the Ottoman Bank were created with foreign money, they mostly lent to foreign traders. As a result, residents turned to moneychangers or the state office, which held the assets of widows and orphans.

The first Security Fund was established in 1863 in Ruse (in modern-day Bulgaria) with Ottoman capital thanks to Midhat Pasha. A second fund was established five years later in Constantinople. The public was in charge of the finances, which were under the government's jurisdiction. The Security Fund was established to gather public property, and people who asked for loans were granted money in pawns or with guarantors. In 1907, Security Funds were handed to the jurisdiction of Ziraat Bank.

The Central Bank of the Republic of Turkey, which was established in the early 1930s, is responsible for creating banknotes, safeguarding the currency, and regulating the banking sector. The Central Bank also lends to public and commercial banks. It also funds the budget deficit of the government. After 1983, the Central Bank began to restrict credit and increase its regulatory responsibilities.

There were only four foreign banks in Turkey before 1980. Following the liberalization policy of the Turgut Özal administration, this number rose rapidly. During these years, a series of reforms were implemented to boost financial market development, including the liberalization of interest and foreign currency rates, the acceptance of new entrants into the banking system, and the encouragement of international banks to operate in Turkey.