Regulatory Compliance Costs on International Banks in Turkey

Abstract

The Turkish government set a policy to become a regional financial center in 2007. This policy involved encouraging international banks to enter Turkey and take a more prominent role in the Turkish banking industry. Since then the progress has been slow to achieve this policy objective. The primary indicator of being a financial center is to have the presence of international banks. Even though there are many representative offices in Turkey, few of them changed their status to subsidiary or branch to this day. On the contrary, some international banks announced that they would downsize their operations. Representative offices have lower investment and compliance cost than that of branches and subsidiaries. Banking regulations in Turkey does not differentiate much by type, operations and size. Also international banks have to comply their head office rules in line with regulators in their home countries. In this article, we focus on the regulatory compliance costs on international banks to open branches and to establish subsidiaries with niche market strategy in Turkey. We argue that regulatory compliance costs play a major role on the reluctance of international banks’ lack of enthusiasm.