GE Consumer Finance: Garanti deal would be Turkish delight

23rd August 2005

GE is in talks to take up to a 25% stake in Garanti Bank.

GE Consumer Finance is looking to take a significant stake in Turkey's Garanti Bank. Considering Turkey's developed credit card market, Garanti looks to be a good fit for GE, which generally focuses on specialist lending and credit card products. The possible tie-up would also enable GE to further its expansion into emerging markets.

GE Consumer Finance is looking to buy a slice of Garanti after Dogus Holding, a Turkish conglomerate that owns 55.1% of Garanti, announced talks about selling half its holding. If talks proceed successfully, the sale would give GE Consumer Finance a 25% stake.

Garanti is the third-largest privately owned bank in Turkey. As of July 30, 2005, the bank listed $21.7 billion in assets and a market value of around $5 billion. Through Bonus Card and Shop & Miles, Garanti owns the fastest growing credit card business in Turkey and currently ranks second in the country's credit card market.

A number of foreign banks have recently acquired stakes in Turkish banks, which signifies that the troubled sector - seen as the main cause of the country's financial crisis in 2001 - is on the road to recovery. Persistent high inflation has stymied the development of Turkey's consumer credit market, which lags behind most other European countries. With inflation coming under control, the market is set to grow quickly during the next few years. Moreover, Turkey aspires to EU membership, and reform of its financial services sector to bring it into line with western European standards would surely be a prerequisite to successful accession.

In this context, GE's potential move into Turkey looks a timely one. The country's drive to restructure its banking market should offer the US giant an amenable environment in which to grow its presence. Garanti in particular makes for a highly compatible partner: it is a leading player in a relatively well developed credit card market, fitting GE's ongoing strategy of entering new markets by focusing on specialist lending and credit card products.

On a broader level, Turkey also offers GE the chance to break into another emerging market as it seeks to lay the foundations for future growth. Should it go through, the Garanti deal is unlikely to be GE's last in central and eastern Europe and Asia as it seeks to expand outside the 'overbanked' industrialized markets such as the US and UK.