PROJECT INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Report No.: AB7664
Project Name
Region
Global Practice
Project ID
Borrower(s)
Implementing Agency
Environment Category
Date PID Prepared
Estimated Date of
Appraisal Authorization
Estimated Date of Board
Approval
Long Term Finance Guarantee
Europe and Central Asia
Finance and Markets
P148858
Türkiye Halk Bankası A.Ş. (Halkbank)
Türkiye Halk Bankası A.Ş. (Halkbank)
[ ] A [ ] B [ ] C [X] FI [ ] TBD (to be determined)
November 3, 2014 (Updated December 3, 2014)
November 12, 2014
February 23, 2015
1. Project Context
The banking sector has limited access to long-term finance, and foreign borrowing barely
breaches three years in maturity. The banking system is funded mostly by relatively well
diversified and stable customer deposits, backing 58 percent of total assets as of December 2013.
However, about 93 percent of the sector’s deposits had maturity below three months, while 76
percent of the lending was concentrated above three months. Characteristically, only 4.2 percent
of deposits had maturity of over one year, dropping to only 1.9 percent for Turkish Lira (TL)
deposits. The result is a negative liquidity gap (i.e. more liquid liabilities than assets, also known
as the liquidity mismatch risk) that peaks in the one to five year maturity. With the system’s loan
to deposit ratio increasing to 115 percent, banks have drawn on balance sheet liquidity and
wholesale funding from abroad (with total assets to foreign liabilities standing at 18 percent,
relatively low by regional standards). However, maturity of the sector’s foreign liabilities barely
breaches three years. Longer term sources of foreign debt, through for instance securitizations
and subordinated debt, remain limited and constitute less than 15 percent of the total. In addition,
following the Banking Regulation and Supervision Agency’s (BRSA) authorization in 2010,
banks begun to issue domestic bank bonds, with tenor ranging between six to 18 months.
Nevertheless, only 2.4 percent of total assets are funded by Turkish lira bonds, while the
weighted average of the maturity remains under one year.
Micro, Small and Medium Enterprises (MSMEs) are the most affected by access to finance
constraints and are the first casualties of financing pressures, despite playing a critical role in the
Turkish economy. MSMEs are estimated to account for 99.9 percent of all enterprises, 76
percent of employment, 54 percent of investments, and 60 percent of exports. The last
Investment Climate Assessment -From Crisis to Private Sector Led Growth (May 2010)- found
strong evidence that MSMEs face disproportionately severe constraints in accessing finance.
Overall, they receive only 27 percent of total loans and grow slower relative to both large
enterprises in Turkey and MSMEs in peer comparison countries. Notably, their share in total
credit declined in the aftermath of the global crisis by about five percentage points to just over 20
percent in 2009, the sharp fall demonstrating how MSMEs are among the first and most affected
casualties of a financing crunch.
Turkey enjoys strong export performance, but reaching the authorities’ ambitious development
vision for 2023 will require significant efforts to further catalyze export growth. Amid a
conducive global environment, progress in domestic structural reforms, and with more
productive companies, merchandise exports increased from USD36 billion in 2002 to over
USD152 billion in 2013, mostly represented by large enterprises at 40 percent of the exports,
followed by micro, small and medium enterprises at 17, 24 and 17 percent respectively. Exports
grew 16 percent a year on average in dollar terms, more than six percentage points above the
average global growth of exports. Turkey now aims to become one of the ten largest economies
in the world by 2023, with exports rising to USD500 billion under the “Turkish Exports Strategy
for 2023” initiated by the Ministry of Economy and Turkish Exporters Assembly in 2009. Yet,
with the recent slowdown of the global economy both in advanced and emerging economies,
Turkey may not benefit simply from the ‘pull’ of growing global demand to the extent that it did
over the past decade. Achieving sustained rapid export growth and reaching the government’s
export targets will require a significant increase in Turkey’s global market share. This, in turn,
will require that exporters become more competitive by producing goods at more attractive
prices, expanding their product range to the faster growing products sphere, and improving
quality and technological sophistication to command higher prices in export markets.
Halkbank, a significant contributor to MSME financial services, faces limited access to long
term funding, similar to the overall banking sector. Halkbank is owned 51.06 percent by the
State, the remaining floated through public offerings in 2007 and 2012, and was the sixth-largest
bank in Turkey by unconsolidated total assets in 2013. The bank has traditionally focused on the
MSME segment as a core business line. It had around 1.2 million MSME clients in 2013,
accounting for over half of its total non-retail client base, with significant penetration in rural
areas. It has the largest share of MSME loans in its loan portfolio among state-owned banks, at
37 percent, above the sector average of 27 percent. Halkbank relies on short-term demand and
time deposits as the primary source of funding, with customer deposits representing more than
72 percent of its liabilities. Another 9.7 percent constitutes funds borrowed and three percent is
marketable securities. Overall, almost 85 percent of the bank’s liabilities had remaining
maturities of one year or less, while over 47 percent of the bank’s assets had remaining
maturities of over a year. As a result, Halkbank had a negative liquidity gap spiking at the one to
five year maturity. This is, indeed, in line with most of the banking sector in Turkey. However,
Halkbank’s loan portfolio above five years constitutes only seven percent of the total, well below
the sector’s average of 15 and the state-owned Vakif Bank and TKB figures of 22 and 33 percent
respectively. Notably, Halkbank’s loan to asset ratio increased significantly compared to the rest
of the banking sector during the global credit crunch in 2007-09, playing an important countercyclical role when the economy was shrinking and the private banks were reluctant to provide
loans to MSMEs.
2. Project Development Objective
The Project Development Objective (PDO) is to improve access to longer term finance for
micro, small and medium enterprises and export oriented enterprises.
3. Project Description
A single component will utilize estimated market finance to Halkbank of USD500 million for
extending sub-loans to MSMEs and EOEs. Halkbank will utilize the total volume raised to
extend directly sub-loans to the final beneficiaries of the project.
For the purpose of this project, MSMEs will be defined as firms employing fewer than 250
people, and Export Oriented Enterprises (EOEs) as exporting firms employing fewer than 1,000
people. The definition of exports will follow the national account definition, and an EOE’s
exports will have to constitute at least 10 percent of its annual sales. Halkbank will directly lend
the World Bank funds to MSMEs and EOEs, the final beneficiaries. At least 60 percent of the
Guaranteed Loan will be used to fund MSMEs. Although micro enterprises will be supported by
the project, it is expected that the majority of the sub-loans will be to small and medium
enterprises.
4. Financing
Source:
IBRD Guarantee
Total
($m.)
400
5. Implementation
Contractual arrangements under the IBRD Guarantee will include three agreements, excluding
the Sub-loan Agreements: (i) a Guaranteed Loan Agreement among Halkbank, the commercial
lender(s) and IBRD pursuant to which the commercial lender(s) would provide financing to
Halkbank, and IBRD would partially guarantee the repayment of such financing by Halkbank;
(ii) a Project Agreement between IBRD and Halkbank pursuant to which certain terms relating to
Halkbank’s sub-loans to MSMEs and EOEs will be defined, including eligibility criteria, terms,
conditions and approval procedures; and (iii) an Indemnity Agreement between IBRD and the
Republic of Turkey (represented by the Turkish Treasury) pursuant to which IBRD will be
indemnified for any draw on the Guarantee.
Halkbank will be responsible for the implementation of the project and was selected based on its
experience with MSMEs and with World Bank projects. The Project Implementation Unit (PIU)
in Halkbank is staffed with capable and qualified personnel for the implementation of the
project. The PIU responsibilities will include: (i) monitoring of the direct lending to final
beneficiaries; (ii) responsibility for adherence to all fiduciary and safeguard requirements of the
World Bank for final beneficiaries; and (iii) monitoring and evaluation based on key project
development indicators.
6. Safeguard Policies
The project has been categorized as “FI” in accordance with World Bank OP 4.01
(Environmental Assessment). Due to the nature of the project, working capital or investment
finance applications are expected to include machinery purchase/replacement or small scale
construction works. Therefore, it is expected that there will be no large scale significant and/or
irreversible impacts. Sub-projects in environmental Category A will not be eligible for funding.
Moreover, the project will not finance sub-projects which may have impacts on natural habitats.
An Environmental Review Procedures document (Environmental Review Framework) was
prepared by Halkbank and was disclosed on its website on 24 November, 2014, followed by
InfoShop disclosure on 26 November, 2014. The draft framework document, included as part of
the draft OM, describes the environmental assessment and environmental due-diligence
procedures to be used in sub-project evaluation. The environmental procedures defined in the
draft Environmental Review Framework document are consistent with the Government of
Turkey’s Environmental Assessment requirements and OP 4.01.
According to the Environmental Review Framework, sub-loan applicants will be required to
carry out an environmental screening, due-diligence (for the existing facilities) and assessment of
the proposed subprojects according to the World Bank safeguard procedures, and to obtain
environmental permits as prescribed by national legislation. Halkbank will be responsible for the
quality assurance of these environmental documents and monitoring of the sub-projects. In this
regard, Halkbank has been found successful during the implementation of the previous MSME
credit line operations. It is highly recommended that Halkbank sustains its staff responsible for
environmental safeguards compliance and continues receiving guidance from the World Bank on
environmental safeguard issues.
7. Contact point
Contact: Ilias Skamnelos
Title: Sr Financial Sector Spec.
Tel: (202) 473-8600
Fax: (202) 614-7688
Email: iskamnelos@worldbank.org
8. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: pic@worldbank.org
Web: http://www.worldbank.org/infoshop