HSBC: finding room for Turkey after Christmas

30th January 2006

HSBC chairman Sir John Bond has announced that the wholly owned Turkish arm of the global bank plans to double the size of its branch network and workforce. In addition, it will be introducing new services for consumers and SMEs. The ambitious plan will be complete by 2010 and should be timed just right to take full advantage of the rapidly expanding Turkish economy.

HSBC aims to increase the number of branches it has in Turkey from 159 to 350 by 2010. The additional branches will also result in HSBC doubling its Turkish workforce to 8,000. The news reflects the UK-based bank's strategic desire to grow organically in Turkey rather than through a process of buyouts, a tactic favored by many of its rivals.

Turkey remains one of Europe's least developed nations in economic terms, and the country suffers from high unemployment and high inflation. Furthermore, Turkey has endured three economic crashes in recent years, the most recent in 2001. Yet the current economic climate appears more benign, bolstered by overseas firms such as HSBC and GE Finance showing faith in its burgeoning economy. Importantly, Turkey is currently seeking accession to the European Union and if this happens it will become an even more appealing place for foreign banks to do business.

In, addition to expanding its network, HSBC will also expand its product offering. The London-based bank may well look to expand its mortgage offering in the coming years to take advantage of a severely underdeveloped market that is poised to take off. While only an estimated 3% of homes are currently financed through mortgages from banks, due in part to astronomical interest rates. These interest rates are falling, which will result in more homes being purchased through funding from banks. The formation of a mortgage bond market in recent months also means that interest rates on mortgages will keep on falling.

The timing of the HSBC expansion looks sound. Although the Turkish economy has undoubtedly been through some troubled times, it is now heading towards stability. This is leading to more of the population becoming open to the products HSBC will be offering. Currently, HSBC has a 2% share by assets of Turkey's banking market and with the market currently expanding rapidly it is not surprising that the global bank plans to gain a bigger share of what will surely become a very lucrative place to operate.