Views can be different; but we should note that cooperation on risks is crucial.

There is a series of indicators used to compare at the international scale the level of development of Turkey's banking sector: size of the balance sheet, total deposits and total credits as a ratio to GDP, etc. Such indicators does not only show how deep the banking sector is  but only give an opinion on the size of savings in Turkey. 

Credits are critical for small enterprises
Volume of credits extended by banks as a ratio to GDP is an important indicator. We seek to improve this ratio. Because as this volume rises, investment and consumption expenditures also rise pushing up the growth rate of the economy. I guess the significance of investment credits is apparent. Besides, we seek an increase also in the number of enterprises receiving credits to increase along with the total volume of credits. Small and medium sized enterprises in particular necessitate such funds to secure higher growth and generate higher employment.

Yesterday you have read my comments on the 'conflict' between the Bank Regulation and Supervision Agency (BRSA) and the Central Bank of the Republic of Turkey (CBRT); I was talking about the risks posed by rapid credit expansion. Then, does this imply a contradiction? How can we seek for the expansion of credit volume on the one hand and talk about the risks posed by rapid credit expansion on the other?

This does not imply a contraction. Because both statements are correct. The critical balance is ensuring credit expansion on the one hand and fulfillment of the obligations arising from the extended credits on the other hand. Should those receiving credits have difficulty in repayment, banks would get in trouble and have hard time in extending new credits in the future. Under these circumstances, we would witness a series of non-repayment occasions, risks would hike and the economy would fail to grow.

It is for sure that the BRSA takes measures to reduce such risks via regulation and supervision at the scale of individual banks. However the potential risks to be imposed by rapid credit expansion correspond not only micro-level risks.

If a certain proportion of credit expansion result from temporal conditions; say if liquidity abundance in international markets flow into developing countries including Turkey having a role in credit expansion in such countries, there exists a potential risk. But as the name tells it, since the capital is 'temporary' it will eventually go back to the market of origin.

Furthermore, the buoyancy resulting from rapid credit expansion might lead to a hike in import demand both directly (for instance through the rise in sales of imported automobiles) and indirectly (through the rise in demand for intermediate goods imports due to the rise in production). Such developments might in turn give way to the accumulation of risks. 

A good scare is worth more than a good advice
There are other examples to the risks created by rapid credit expansion. But is a good scare is worth more than a good advice, it would be enough to remind everyone how the global crisis erupted and became a trouble for the whole world.

It is evidently of great use that the Bank Regulation and Supervision Agency (BRSA) and the Central Bank of the Republic of Turkey (CBRT) reads the credit expansion from different angles. However while maintaining different perspectives on the one hand; they should cooperate on macroeconomic risks on the other hand. They have to avoid pointless discussions in public.

This commentary was published in Radikal daily on 15.11.2010