Turkish banks should lend more to small and medium-sized businesses to help strengthen the banking system and the industrial sector and also to reduce the informal economy, the World Bank said on Thursday.
Turkey's banking sector has staged a strong recovery, along with the rest of the economy, since a devastating 2001 financial crash triggered the state's seizure of 21 banks.
But the banks remain conservative in their lending habits, focusing mainly on parent companies and selected large firms, even though small and medium-sized enterprises (SMEs) make up 99 percent of Turkey's manufacturing industry.
"Credit to the private sector as a percentage of GDP remains small and quite far behind the European and Asian tigers," Andrew Vorkink, the World Bank's Turkey representative, told a financial conference in Istanbul.
"The picture worsens when one considers that lending to financial-industrial conglomerates represents a large portion of the credit outstanding in Turkey," he added.
The government, which secured EU accession talks for Turkey last month, this week unveiled sweeping cuts in corporate, income and investment taxes to attract more investment amid intense rivalry among emerging markets.
Turkey's economy has sharply rebounded on the back of a strict International Monetary Fund-backed programme and inflation has fallen sharply, consumer confidence is back and privatisation's are back on track.
Banks' credit portfolios have risen 114 percent to $81 billion in the period to July from end-2002 while total assets grew only 26 percent in dollar terms to $241 billion.
The ratio of credits to deposits in banks rose to 37 percent now from 23 percent in 2002.
But Vorkink said the rise in lending did not mean the "unrelated" private sector had access to bank loans.
Increased access to investment capital by SMEs under conditions that would not threaten macro-economic stability "represents...a key element in unleashing the full potential of this economy," he said.
"Naturally, Turkey will not be able to afford for a long time a situation of limited access to investment capital on the part of its productive sectors."
"...I believe the banking sector will increasingly need unrelated and new corporate clients of all sizes to meet the upcoming third generation of challenges."
Economy Minister Ali Babacan told the same conference that more SMEs should move out of the informal economy in order to tap more effectively the banking system.
"If they fail to harmonise their balance sheets into a tax paying system, SMEs will not be able to find loans for investment from banks in the near future," he said.