abroad. they opened branches abroad and took important steps to increase their shares in international markets by acquiring financial participations and partnerships. as of june 2000, turkish banking sector, including branches abroad, operates with the total asset size of usd 140. 4 billion, more than 8, 000 branches and almost 170, 000 personnel. the turkish banking sector is also open to international competition. at present 25 foreign banks, including development and investment banks, constitute 31 % of the total number of banks in the sector. the share of foreign banks has also increased during the past few years. while their share was 5. 8 % and 5. 6 % as the end of 1997 and 1998 respectively, it increased to 6. 7 % as of june 2000, representing the total asset size of usd 9. 4 billion. the majority of this share belongs to foreign commercial banks. as of july 2000, turkish banks have : • 83 financial subsidiaries in 24 different countries ; • 41 branches in 10 different countries ; and • 62 foreign representative offices in 10 countries. 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

as i mentioned earlier, parallel to the development of new financial instruments and markets and the resultant more complex and dynamic transactions, risk measurement and risk management techniques have changed dramatically. financial institutions have increasingly been using internal rating and other risk measurement systems and models such as var, stress and back testing, and scenario analysis. as a result of these developments, every trading institution, including central banks, has become more exposed to changes all over the world economies and financial markets. indeed, the recent asian financial crisis revealed that the financial and economic stability of emerging market economies is extremely vital for global financial and economic stability. banking business and banking transactions have become very complex. development of offbalance sheet transactions and derivative markets had an enormous impact on the banks ’ balance sheet structure, level and variety of risks to which they are exposed. based on these developments, the importance of derivative instruments in banks ’ risk profile has increased. ( b ) risks arising from globalization if we evaluate the risks arising from globalization, we realize that there are losers as well as winners in the process of globalization. it is a well - known fact that the process of globalization does not evolve equally worldwide. some countries obtain great benefit from the process, mainly driven by their rapid integration into the global economy relative to other countries. in other words, the integrated global economy does not guarantee that the benefits of globalization are shared by the all countries involved in the process. more importantly, opportunities provided by the globalization process are not always beneficial, as shown by the recent crises. hence, the process of globalization always carries social, economic, financial, cultural and even political risks in addition to the risk of contagion. there are several reasons for this situation. some of them are beyond the control of the countries involved such as external shocks and other unexpected changes in external environment. indeed, most of these reasons are due to : • weak macroeconomic and financial policies implied ; • inconsistencies in domestic policies ; • increased vulnerability of national economies to external shocks ; • higher international capital mobility ( ie higher sensitivity of international capital flows among economies ) ; • higher volatility of exchange rates due to integrated financial markets, which hits real sectors of economies. as countries ’ economies become more vulnerable to external changes, they are exposed to shocks and crises with severe consequences both in financial and real sectors, as well as facing heavy social costs. in this context, i would like to emphasize the importance of the risk of contagion in highly integrated global financial environment. as