DEVELOPMENT OF FACTORING MARKET IN TURKEY by Rengin Ekmekçioğlu CEO of Yapı Kredi Faktoring A.Ş President of Turkish Faktoring Association World Bank Faktoring Conference, Warsaw October 23-24,2003 World Bank Factoring Conference, Warsaw October 23-24, 2003 FACTORING IN TURKEY 1988 FCI initiates Factoring in Turkey 1988 First Factoring Operation within a Bank 1990 First Factoring Company 1992 First Foreign Investment in Factoring “ Heller + IFC+ Yapı Kredi + Interbank joint venture.” 1994 First Factoring Regulation Law-empowered Decree-no: 545 and the “Regulation related to the Principiles of Establishment and Operations of factoring Companies.” Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 FACTORING IN TURKEY 1995 Establishment of Turkish Factoring Association 1995 Growth: Many players in the market 1999 Increasing Export Factoring Volumes 2002 Turkey becames number two in Export Factoring among FCI members 2002 Turkish Eximbank vs Export Factoring 2003 New Factoring Law? Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 WORLD FACTORING TURNOVER (in millions of usd) 787 734 498 541 529 33 31 1998 575 555 2000 2001 INTERNATIONAL 2002 DOMESTIC Growth of world factoring volume 1999 2000 2001 9% 4% 9% FCI STATISTICS 2002 Rengin EKMEKÇİOĞLU 648 54 43 42 1999 605 597 TOTAL 2002 21% Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 FCI FACTORING TURNOVER (in millions of usd) 219,656 225,948 203,887 245,353 277,122 255,404 21,718 1998 1999 2000 28,927 2001 INTERNATIONAL 1999 12% FCI STATISTICS 2002 Rengin EKMEKÇİOĞLU 355,263 262,566 22,614 19,405 15,769 285,180 326,336 2002 DOMESTIC Growth of FCI factoring volume 2000 2001 13% 3% TOTAL 2002 25% Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 900,000 FACTORING TURNOVER OF FCI AND WORLD (in millions of usd) 800,000 787,249 700,000 574,727 600,000 596,662 648,175 529,515 500,000 400,000 300,000 277,122 245,353 285,180 355,263 219,656 200,000 100,000 1998 1999 2000 COMPARED FACTORING TURNOVER 1998 1999 2000 2001 FCI / WORLD %41 %43 %46 %44 TURKEY / WORLD %0.9 %0.9 %1.0 %0.6 FCI STATISTICS 2002 TURKEY / FCI %2 %2 %2 %1 Rengin EKMEKÇİOĞLU 2001 2002 WORLD FACTORING TURNOVER 2002 %45 %0.6 %1 FCI FACTORING TURNOVER Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 INTERNATIONAL FACTORING TURNOVER OF FCI AND TURKEY (in millions of usd) 35,000 28,927 30,000 25,000 19,405 20,000 15,000 10,000 5,000 21,718 FCI 22,614 TURKEY 15,769 750 1998 748 921 990 1999 2000 2001 1,260 2002 COMPARED FACTORING TURNOVER INT TURKEY /INT FCI Rengin EKMEKÇİOĞLU 1998 %5 1999 2000 2001 2002 %4 %4 %4 %4 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 FACTORING TURNOVER IN TURKEY (in millions of usd) 5,943 5,266 4,750 4,518 4,673 5,022 4,000 3,690 3,413 2,700 750 921 748 1998 1999 1,260 990 2000 2001 INTERNATIONAL 2002 DOMESTIC TOTAL Growth of factoring volume in Turkey 1999 2000 2001 2002 11% 13% - 38% 27% Turkish Factoring Association Statistics Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 FACTORING TURNOVER IN TURKEY (in millions of usd) 7,000 6,000 5,000 4,000 5,943 5,266 4,673 4,750 3,690 3,000 2,000 1,000 1998 1999 2000 2001 2002 Turkish Factoring Association Statistics Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 Cross country comparison in 2002 (in millions of usd) Country Total International International / Total United Kingdom 168,741 6,363 4% Italy 141,750 5,250 4% U.S.A 113,925 4,200 4% France 71,400 5,775 8% Japan 52,899 635 1% Spain 33,145 742 2% Portugal 11,918 368 3% Brazil 11,582 32 0% Australia 10,003 68 1% Finland 9,520 286 3% Taiwan 8,988 2,625 29% Turkey 4,673 1,260 27% Greece 2,835 210 7% FCI STATISTICS 2002 Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 Comparison of selected countries export factoring turnover with TURKEY (2002) COUNTRY Hong Kong Taiwan Turkey China Mexico EXPORT/TOTAL FACTORING VOLUME 32% 30% 27% 16% 3% FCI STATISTICS 2002 Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 10 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE ESTABLISMENT OF THE TURKISH FACTORING ASSOCCIATION Preparation of a uniform standart factoring agreement Having factoring risks included in Central Bank Risk Centralization system Obtaining Resource Utilization Support Fund (KKDF) exemption over the foreign funds provided for export funding Issuance of a declaration about stamp duty, than having the stamp duty law modified Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 11 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE ESTABLISMENT OF THE TURKISH FACTORING ASSOCCIATION Issuance of a declaration confirming that factoring companies are financial institutions, in order not to implement the expense limitation clauses of corporate tax law (Corporate tax General Declaration no: 54, dated:06.12.1996 Issuance of a declaration ensuring that banks should properly follow the instructions of factoring companies while issuing F/X Purchase Certificate (DAB) Drafting a law concerning factoring companies Preparation of Uniform Chart of Account Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 12 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE ESTABLISMENT OF THE TURKISH FACTORING ASSOCCIATION Conducting a publicity advertisement campaign 10 Organizing seminars and symposiums 11 Organizing training programs 12 Construction of a web site for the association 13 Continuous representation of the sector in all government offices Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 13 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 Turkish Factoring Association share in the market (in millions of TL) Association Market Share Total Market Members of T.F.A 2001 Assets 1.064.533.782 1.522.530.313 70% 2001 Incomes 335.933.964 429.783.428 78% 2002/09 Domestic volume 2.812.099.710 3.335.442.297 84% 2002/09 International volume 1.043.197.260 1.074.790.326 97% 2002/09 Total volume 3.855.296.790 4.410.232.623 87% Turkish Factoring Association Statistics Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 14 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Need for new factoring law Factoring transactions are being carried out within the frame of law-empowered Decree No, 545 About Borrowing Money Transactions and Regulations based upon this decree This Decree affects the sector negatively from two aspects Since, Decree No 545 is also arranging simple money lenders, factoring transactions based upon account receivables sourced by invoiced sales are confused with borrowing transactions and as a result of it the factoring image is negatively influenced On the other hand, since factoring is perceived as a borrowing transaction it is being defined in a form weighted with a financial aspect Whereas function of the service given, another words, services such as debt collection, receivables management, protection against credit risks are the most important feature of the factoring function have been neglected As a consequence of this special feature factoring is different from simple money lending, for this reason the name of financing supplied is “pre-payment” This situation shows that a new definition is required for factoring to include all the functions contained wherein A new law to be passed for factoring can eliminate all these problems Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 15 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Banking and Insuranc Transaction Tax Within the current legal framework possible financing sources to be used by factoring companies consist of their own capitals and loans to be obtained from domestic and international banks Factoring companies are paying 5% BITT for domestic bank loans and 5% BITT applies when this source is used by their clients While this situation increase financing cost from one side, from the other side an unfair competition arises because banks that are allowed to make factoring transaction have the opportunity to pay the same tax as 1% In order to offer funds with more convenient cost to SME’s and foster their production, lowering BITT rates on bank loan transactions of factoring companies, to the rate of 1% as in the loan transactions between banks, will at least eliminate the existing unfair competition Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 16 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Provisions One of the most important risks of factoring sector is the situation of late back payment or non-payment and/or impossibility of indemnifying guarantees given for debtors There is no judicial measure existing to lessen the risk that the factoring sector encounters Banks being together within the finance sector have the possibility to separate provision for loans unreturned according to the Banking Law, and to deduct these provisions from their taxable amount For factoring companies making transactions of the same nature, a new law, can ensure provisions for doubtful receivables to be entered as expense acceptable by tax laws, which in turn create equality between the institutions Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 17 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Credit Insurance Domestic Transactions Credit insurance has recently started in Turkey But, according to regulation on this subject, factoring companies are not entitled to participate in the credit insurance policies as third party This condition prevents to carry out guaranteed domestic factoring transactions (nonrecourse) In case this problem is solved, factoring companies, as in the EU countries, will have the possibility to give domestic guaranteed factoring services and will lead to the development of the sector Credit Insurance International Transactions One of the most important legs of export factoring transactions is their correspondent abroad guaranteeing export payments Correspondents are generally factoring companies in the country of the importer A part of exports of Turkey is being done to the countries where factoring techniques are not started to apply yet such as new Turkic Republics of the former Soviet Union and this situation impedes making export factoring to these countries To include factoring companies to Eximbank export insurance will be the only reasonable solution of this problem Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 18 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Risk Evaluation Information regarding bad checks and protested bills are very important from the point of financial risk evaluation Factoring companies are not able to benefit from this information because of the word only “banks” existing in related laws By changing related laws, to ensure factoring companies, to benefit from this information will be useful Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 19 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Invoice According to today’s legal substructure, the basis of factoring transactions are current and expected receivables rising from sales of goods and services based on invoices or other evidencing documents Within this frame, invoices and other evidencing documents are a main document that supports factoring However, according to current laws, because of evidencing and proof power of the invoice solely, from the aspect of collecting credit borne by whereof, at judicial authorities, depends upon decision to be given at the end of long lasting lawsuits, factoring companies are obliged to take a bank check or commercial bond as means of payment together with invoice or other evidencing document upon which the credit alienated is based This situation, additionally, causes factoring to be perceived as borrowing money to provide finance against bank check and commercial bond and thus prevents development of real factoring Solution of the problem will be possible by legal provisions to increase present validity of the invoice and to bring whereof to a state holding a legal sanction, as in the bank check and commercial bond, in case of the debt is not paid In case that such a legal arrangement is not proper for all invoices, making the said arrangement only for invoices, being support of a credit alienated with the purpose of financing, will convey the problem to a solution too Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 20 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Uniform Chart of Accounts There is no uniform chart of accounts that is obligatory to apply to factoring companies Since this situation prevents standardization in the sector, Factoring Association and Independent Audit Association formed a study group to prepare a uniform chart of accounts for factoring companies and this group has formed a draft of chart of accounts at the end of a long lasting study Through negotiations done with the Treasury Undersecretary the problem is being tried to reach a solution Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 21 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY Benefiting From Interbank Factoring companies are not able to benefit from Interbank funding systems However, for the said companies having no possibility other than bank loan to obtain funds within the frame of legal substructure of present days, benefiting from Interbank would be an important factor to support development of factoring Additionally, offering excess fund existing at factoring companies to the finance market by that way will be useful for the said marked and this is an issue not to be undervalued at every instant Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 22 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 WHAT IS THE FUTURE OF FACTORING INDUSTRY IN TURKEY? Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 23 Turkish Factoring Association [...]... required for factoring to include all the functions contained wherein A new law to be passed for factoring can eliminate all these problems Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 15 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 2 Banking and Insuranc Transaction Tax Within the current legal framework possible financing sources... development of factoring Additionally, offering excess fund existing at factoring companies to the finance market by that way will be useful for the said marked and this is an issue not to be undervalued at every instant Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 22 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 WHAT IS THE FUTURE OF FACTORING INDUSTRY IN TURKEY? Rengin EKMEKÇİOĞLU... existing in related laws By changing related laws, to ensure factoring companies, to benefit from this information will be useful Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 19 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 6 Invoice According to today’s legal substructure, the basis of factoring transactions are current and. .. Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 3 Provisions One of the most important risks of factoring sector is the situation of late back payment or non-payment and/ or impossibility of indemnifying guarantees given for debtors There is no judicial measure existing to lessen the risk that the factoring sector encounters Banks being together within the finance... financing, will convey the problem to a solution too Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 20 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 7 Uniform Chart of Accounts There is no uniform chart of accounts that is obligatory to apply to factoring companies Since this situation prevents standardization in the sector, Factoring. .. from two aspects Since, Decree No 545 is also arranging simple money lenders, factoring transactions based upon account receivables sourced by invoiced sales are confused with borrowing transactions and as a result of it the factoring image is negatively influenced On the other hand, since factoring is perceived as a borrowing transaction it is being defined in a form weighted with a financial aspect... problem Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 18 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 5 Risk Evaluation Information regarding bad checks and protested bills are very important from the point of financial risk evaluation Factoring companies are not able to benefit from this information because of the word only... Statistics Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 14 Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 1 Need for new factoring law Factoring transactions are being carried out within the frame of law-empowered Decree No, 545 About Borrowing Money Transactions and Regulations based upon this decree This Decree affects the sector... THE ESTABLISMENT OF THE TURKISH FACTORING ASSOCCIATION 9 Conducting a publicity advertisement campaign 10 Organizing seminars and symposiums 11 Organizing training programs 12 Construction of a web site for the association 13 Continuous representation of the sector in all government offices Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU 13 Turkish Factoring Association World Bank Factoring Conference, Warsaw... Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 PROBLEMS OF FACTORING SECTOR IN TURKEY 8 Benefiting From Interbank Factoring companies are not able to benefit from Interbank funding systems However, for the said companies having no possibility other than bank loan to obtain funds within the frame of legal substructure of present days, benefiting from Interbank would be .. .World Bank Factoring Conference, Warsaw October 23-24, 2003 FACTORING IN TURKEY 1988 FCI initiates Factoring in Turkey 1988 First Factoring Operation within a Bank 1990 First Factoring Company... Export Factoring 2003 New Factoring Law? Rengin EKMEKÇİOĞLU Rengin EKMEKÇİOĞLU Turkish Factoring Association World Bank Factoring Conference, Warsaw October 23-24, 2003 WORLD FACTORING TURNOVER (in. .. FACTORING SECTOR IN TURKEY Banking and Insuranc Transaction Tax Within the current legal framework possible financing sources to be used by factoring companies consist of their own capitals and