Asset Management Sector in Türkiye
The Asset Management Sector in Turkey, as in the rest of the world, is a young sector with a history of 18 years. Operating under a BRSA licence, PMSCs are subject to BRSA regulation and supervision in accordance with the Banking Law and the PMSC Regulation. Fiba Holding made its first investment in the sector in 2005 when the consortium it established in partnership with Lehman Brothers Inc. won the non-performing loan tender organised by the SDIF. Later on, private banks' non-performing loan portfolio sales started in 2008 and Gelecek Varlık made its first private bank NPL portfolio investment in 2008. As of September 2022, there are 23 licensed Asset Management Companies in the sector.
The sector benefits two main stakeholder groups: banks and borrowers. The main benefits provided to banks can be categorised under 3 headings; (i) the reduction of NPL ratios, strengthening of capital adequacy ratios, positive impact on credit ratings and improvement of funding costs by ridding the banking balance sheet of non-performing loans, (ii) the transfer of the burden of both operationally burdensome and costly processes such as collection and legal follow-up from banks, and (iii) the opportunity for banks to focus on their core business areas such as deposit collection and loan allocation.
The benefits for debtors can be grouped under 4 main headings; (i) realisation of more flexible, long-term restructuring transactions with wide discount opportunities, (ii) offering lower cost solutions thanks to the tax exemptions provided to the sector (iii) realisation of more effective and possible solutions with fewer parties due to the effect of consolidation of debts (iv) daily updating of information in the credit registry when the debt is settled thanks to integration with the Risk Centre, and bringing debtors back to the financial system.
NPL sales have now become an integrated part of the financial ecosystem, where the necessary sales systems and processes have been developed. Moreover, under the new legislation, it has become possible to purchase NPLs from foreign banks and financial institutions. Considering the more developed markets such as the US and Europe, which have asset management sectors with a long history, NPL sales processes can be expected to expand towards earlier delinquency periods of the portfolio. In Turkey, there have also been portfolios sold through the so-called "forward flow" sales method, whereby the sale method guarantees the receivables to be purchased by the NPL in the event that the early loan receivables are established with certain standards.
Being a regulated sector increases confidence in the functioning of the sector. This confidence supports the sustainability and strong cash flow of the sector. Regulation provides a favourable investment environment for Asset Management Companies that meet the expected high standards. The operational, financial and corporate governance standards, which have been further raised by the Regulation on PMCs published in July 2021, also create a high barrier to entry. As one of the oldest and pioneering organisations in the sector, Gelecek Varlık operates in compliance with regulations and high standards. Pursuant to the New Regulation on PMCs, the minimum paid-in capital required for the establishment of a PMC has been increased to TL 50 million, the qualifications required for board members, general manager and deputy general managers have been raised compared to the Abrogated Regulation on PMCs, and more detailed regulations have been made regarding the establishment of internal systems. These changes raise the entry barrier to the sector. With its existing operational, financial and corporate governance standards and paid-in capital of TL 126,500,000, Gelecek Varlık is ready for these changes. These standards also have the effect of enhancing and protecting the reputation of Asset Management Companies that are obliged to comply with these regulations.
It fulfils an important function for the healthy functioning of the financial ecosystem. When flexible, long-term, discounted restructurings provided to customers who have difficulty in paying their debts are made within the balance sheets of the banking sector, there is a risk of moral erosion of healthy and vibrant loan customers, which constitute more than 85% of bank balance sheets. However, the risk of moral erosion is minimised when the same restructurings are made within the balance sheets of Asset Management Companies, under the umbrella of a company that always has similar customers.