Removing the CBRT Chair from office!

The last time when a CBRT Chair was removed from office was during the 1980 military coup. No removal from office had taken place in the CBRT history, except for one case of resignation. Although the legal aspect of the said incident was potentially controversial, it happened nonetheless. Now, let’s take a quick look at the details.

I’ve known for quite some time that there has been conflict between the deposed Chair and the Economy Administration. I’ve even heard that Murat Çetinkaya was told several times to resign, yet he did not want to abandon his position.

It’s really encouraging to appoint young executives to some key positions; however for a position like the Chair of CBRT, it is always wiser to choose someone at least in his or her fifties. Here’s why: Candidates who had gone through multiple severe financial crises, who found plausible solutions accordingly, people with international experience and high level of theoretical and practical knowledge, candidates who have children capable of earning their livings, and most importantly with a personality marked by assurance and self-control are proven to be more successful in such positions. Such considerably experienced people have also mastered the art of “saying no” to the government’s demands. It’s important to have strong skills to express objection without creating conflict.

Although people who were appointed as CBRT Chairs were all valuable and highly educated individuals, they sadly lacked the characteristics I mentioned above due to their young age. I do not wish to offend anyone in anyway, I would never underestimate neither the knowledge not the values these distinguished individuals have but one has to have other skills as well in order to survive in such positions. There’s a big difference between Market Experience and Institutional Experience.

Why such hasty decision? If you ask me, it was a long-delayed decision already because the Economy Administration thought that rate cuts should have been implemented long time ago. There were also big rumors that Murat Çetinkaya was not open to criticism for the last year. In short, Murat Çetinkaya’s removal from office was the inevitable result of endless debates including policy interest rates and reserve funds.

“It appears an unfitting decision…”

However, this decision had to be made soon, technicality-wise: Some interesting things were going on for a while, especially in financial parameters. For instance, according to the BRSA data, as the share of non-performing loans in total gross loans keeps increasing, it appears significant decline in capital adequacy ratio. The increasing number of non-performing loans is relatively acceptable; however, the fact that the capital adequacy ratio of Turkish Banking Systems gradually nears a risk level of 12% causes raised eyebrows. Under normal circumstances, people would consider this ration “This is just banks trying to offer the largest number of loans”. But, the current situation indicates that some banks remain considerably below the critical level.

Luckily, a rate cut by CBRT in July Meeting may help banks breathe a sigh of relief, at least in terms of cost of funding. I can clearly say that, amongst all the developing countries, Turkey has the highest level of gap between expectational inflation and policy interest rate. More and more people, including International Institutions, expect CBRT to take an action to ease the markets in July.

According to Erdoğan’s statement, the reason why Çetinkaya was removed from office is the delay in rate cut. Although I believe that a cut in policy interest rates would help banks breathe a sigh of relief, the way this situation was handled was beneath Turkey’s dignity. Apparently, that is not the narrative that International Capital expects Turkey to tell the world. I guess there’s nothing we can do now but hope for the best.