European University of Lefke (EUL) Faculty of Economics and Administrative Sciences Department of Banking and Finance organized a conference themed “The Problems Faced by the Banks in TRNC Today”. Tolga Çağakan, Senior Executive Vice President of Kıbrıs Vakıflar Bankası attended conference as a speaker.

Banks are facing serious problems in 4 different fields.

Underlining that the banks are facing serious problems at the beginning of his speech Çağakan said that the taken measurements are not sufficient. Çağakan pointed out that these problems can be gathered under 4 different headings and emphasized the importance of easing or solving these problems as soon as possible.

Çağakan pointed out the first problem as mismatching deposit times and credit times and said that 66% of deposits have a maximum maturity of one month, while 72% of bank loans are long-term and that this structure creates problems and difficulties in bank management.

Çağakan touched upon the fact that although the earnings of the borrowers in Turkish Liras, loan borrowers tend towards to foreign currency denominated loans as the interest rates of loans borrowed on a foreign currency basis are very low compared to the interest rates on Turkish lira, as the second problem. Çağakan said that “This creates a situation where earnings and payouts do not match” and added that this situation creates an advantage in debt payments during periods when exchange rates are stable, but that there is a serious disadvantage in periods of sudden unexpected increase in foreign exchange rates, and that it puts the repayment of debts in a difficult position. Çağakan also emphasized that this is not the case in other countries, but it is and remains a serious problem in the TRNC.

Çağakan pointed out that the pending cases on unpaid debts in the TRNC courts have increased in the worsening economic situation and added that it is worrying that these cases will result in a delay of five to ten years in the existing legal system. He also said that such delays exclude funds that can be given credit, and increase the cost of new loans. Pointing out that the provision for the overdue receivables that cannot be collected has to be set aside from the profit or the paid-in capital, Çağakan said that the collaterals that were put on sale in order to replace these receivables were subject to depreciation in the long-term disposal process.

Finally touching upon the problems caused by being out of the global financial world, Çağakan said that, while branch banks and two local banks does not face these difficulties, all local banks have their hands tied in situations such as in correspondent bank relationships, international financial institutions, membership applications and international funds or bond marketing in international markets. Çağakan further said that this table creates a negative and unfair competition conditions for local banks but on the other hand financial crisis in international markets does not seriously affect these local banks.

Çağakan: All problems are increasing the costs of banks

At the end of his speech Çağakan pointed out that it is possible for many of these problems to be overcome by local banks, but local banks should come to a common understanding among themselves and underlined the necessity of cooperation in overcoming these problems.

At the end of the conference Çağakan was presented a certificate of appreciations by the Dean of Faculty of Economics and Administrative Sciences Prof. Dr. Okan Veli Şafaklı.