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

FACTORING IN TURKEY

1988

FCI initiates Factoring in Turkey.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

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.”

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FACTORING IN TURKEY

1995

Establishment of Turkish Factoring Association.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1999

Increasing Export Factoring Volumes.

2002

Turkey becames number two in Export Factoring

among FCI

members.

2003

New Factoring Law?

1995

Growth: Many players in the market.

2002

Turkish Eximbank vs. Export Factoring

2

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

WORLD FACTORING TURNOVER (in millions of usd)

33

54

43

42

31

734

605

555

541

498

787

597

648

575

529

1998

1999

2000

2001

2002

INTERNATIONAL

DOMESTIC

TOTAL

1999

2000

2001

2002

9%

4%

9%

21%

Growth of world factoring volume

FCI STATISTICS 2002

Turkish Factoring
Association

3

World Bank Factoring Conference, Warsaw October 23-24, 2003

3

FCI FACTORING TURNOVER (in millions of usd)

28,927

22,614

21,718

19,405

15,769

326,336

262,566

255,404

225,948

203,887

277,122

245,353

285,180

355,263

219,656

1998

1999

2000

2001

2002

INTERNATIONAL

DOMESTIC

TOTAL

1999

2000

2001

2002

12%

13%

3%

25%

Growth of FCI factoring volume

FCI STATISTICS 2002

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

4

World Bank Factoring Conference, Warsaw October 23-24, 2003

FACTORING TURNOVER OF FCI AND WORLD

(in millions of usd)

355,263

529,515

574,727

596,662

648,175

787,249

285,180

277,122

245,353

219,656

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1998

1999

2000

2001

2002

WORLD FACTORING TURNOVER

FCI FACTORING TURNOVER

FCI STATISTICS
2002

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

COMPARED FACTORING TURNOVER
1998 1999 2000
2001 2002
FCI / WORLD %41 %43 %46
%44 %45
TURKEY / WORLD %0.9 %0.9 %1.0
%0.6 %0.6
TURKEY / FCI %2 %2 %2 %1
%1

5

World Bank Factoring Conference, Warsaw October 23-24, 2003

INTERNATIONAL FACTORING TURNOVER OF

FCI AND TURKEY (in millions of usd)

21,718

22,614

19,405

15,769

28,927

750

748

921

990

1,260

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1998

1999

2000

2001

2002

FCI
TURKEY

COMPARED FACTORING TURNOVER

1998 1999 2000
2001 2002
INT. TURKEY /INT. FCI %5 %4 %4 %4
%4

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

6

FACTORING TURNOVER IN TURKEY (in millions of usd)

990

5,943

1,260

921

748

750

3,413

2,700

4,518

4,000

5,022

4,673

3,690

4,750

5,266

1998

1999

2000

2001

2002

INTERNATIONAL

DOMESTIC

TOTAL

1999

2000

2001

2002

11%

13%

- 38%

27%

Growth of factoring volume in Turkey

Turkish Factoring Association
Statistics

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

7

FACTORING TURNOVER IN TURKEY

(in millions of usd)

4,673

3,690

5,943

5,266

4,750

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1998

1999

2000

2001

2002

Turkish Factoring Association
Statistics

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

8

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%

J apan

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%

Cross country comparison in 2002 (in millions of usd)

FCI STATISTICS 2002

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

9

EXPORT/TOTAL FACTORING VOLUME

30%

COUNTRY

32%

16%

Hong Kong

China

Turkey

Mexico

Comparison of selected countries export factoring turnover with

TURKEY (2002)

Taiwan

3%

27%

FCI STATISTICS 2002

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1
0

ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE

ESTABLISMENT OF THE TURKISH FACTORING

ASSOCCIATION

1. Preparation of a uniform standart factoring

agreement.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

2. Having factoring risks included in Central Bank Risk

Centralization system.

3. Obtaining Resource Utilization Support Fund (KKDF) exemption

over the foreign funds provided for export funding.

4. Issuance of a declaration about stamp duty, than having the

stamp duty law modified.

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1

ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE

ESTABLISMENT OF THE TURKISH FACTORING

ASSOCCIATION

5. 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

6. Issuance of a declaration ensuring that banks should properly

follow the instructions of factoring companies while issuing F/X
Purchase Certificate. (DAB)

7. Drafting a law concerning factoring companies.

8. Preparation of Uniform Chart of Account.

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ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE

ESTABLISMENT OF THE TURKISH FACTORING

ASSOCCIATION

9. Conducting a publicity advertisement

campaign.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

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.

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Association

Members

Total Market

Market Share

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 share in the market (in millions of TL)

Turkish Factoring Association
Statistics

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1
4

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 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

PROBLEMS OF FACTORING SECTOR IN TURKEY

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PROBLEMS OF FACTORING SECTOR IN TURKEY

2. 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1
6

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 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1
7

PROBLEMS OF FACTORING SECTOR IN TURKEY

4. 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 (non-recourse). 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.

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.

Credit Insurance
International Transactions

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1
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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 “banks” existing in
related laws. By changing related laws, to ensure factoring companies, to
benefit from this information will be useful.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

1
9

PROBLEMS OF FACTORING SECTOR IN TURKEY

6. 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

2
0

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 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

2
1

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 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.

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

2
2

WHAT IS THE

FUTURE OF FACTORING

INDUSTRY

IN

TURKEY?

World Bank Factoring Conference, Warsaw October 23-24, 2003

Rengin EKMEKÇİOĞLU

Turkish Factoring
Association

Rengin EKMEKÇİOĞLU

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