Gazi Erçel: Globalization and international financial environment  Remarks by Mr Gazi Erçel, Governor of The Central Bank of the Republic of Turkey, at the General Meeting of the 17th Asian Banking Association which was held in Istanbul on 22 September 2000. *  *  *  I am honored to participate in this meaningful organization and I would like to thank you for the opportunity to address this distinguished audience today. I would like to begin with a quick review of the recent developments in the international financial environment, which I believe will give a clear idea why the issue of globalization is very crucial, interesting as well as challenging. Beginning with an evaluation of the recent financial crises, I will then concentrate on the growing importance of globalization process and challenges brought by globalization. I. Developments in the international financial environment  The 1980s and 1990s witnessed significant changes in the international financial markets. With the advent of globalization and rapid integration of financial markets, the world we live in is getting smaller in every aspect of life. Nowadays, when international banking systems are experiencing significant changes, banking is being discussed at a global level. Therefore, from the global standpoint, what seems to be important for banking systems is not the size, but the level of compliance with the internationally accepted rules and standards, and their functionality. In today’s financial environment, dominated by a dynamic, aggressive financial service industry, banks as major players operate with greater freedom.

At present, the Turkish banking sector has up-to-date technology and is equipped with highly qualified personnel to compete in the international arena. The result is a more transparent and well-functioning banking sector whose players have been progressively modernizing their operations in line with the developments in the global banking community. There is a significant growth potential in the Turkish banking sector. Banks will have to compete in an increasingly challenging environment. In the coming years, strategically and technically well-positioned banks will be able to utilize the growth potential of the sector. However, increasing competition and squeezed profit margins are expected to force banks to be more cost conscious. In order to increase profitability and efficiency, mergers and strategic alliances with foreign banks will be on the agenda of the sector. The integration process with the EU will bring new challenges for Turkish banks to increase their efficiency and quality of their services by improving their distribution channels. Additionally, increasing compliance with the internationally accepted standards and other structural changes made in line with the integration process with the European Union will attract foreign banks, which in turn will intensify the competition in the sector. Another significant step taken by Turkish authorities was the introduction of the recent disinflation program and the other restructuring efforts. Turkey has suffered from chronically high inflation for years and our economy is the last high-inflation economy among the OECD countries. High level of public deficits and fiscal imbalances, together with self-fulfilling inflationary expectations are the main causes of the inflation process.