durmus yılmaz : developments in mediterranean countries ’ banking sectors and implications for financial stability speech by mr durmus yılmaz, governor of the central bank of the republic of turkey, at the euro - mediterranean high level meeting, alexandria, 26 november 2008. * * * good afternoon. i would like to take this opportunity to thank the european central bank for their kindly invitation and the bank of egypt for hosting the fifth euro - mediterranean high level meeting here in alexandria. since the beginning of the barcelona process in november 1995, turkey has been an enthusiastic partner of the euro mediterranean project. throughout this process turkey has collaborated on various macroeconomic issues and initiatives. recent global financial developments have proved that cooperation at the regional level as well as global level has become more important than ever to overcome international financial challenges. it is our joint responsibility as respective individual countries to contribute to the stability in financial sectors and build up a better international financial system. distinguished guests, the worsening expectations of global growth, problems surfaced in financial institutions in developed countries, and deterioration of global credit conditions have all led to a sharp spike in risk perceptions. de - leveraging process in the developed countries has caused risk indicators of emerging markets to deteriorate significantly. for example, embi + spreads have increased markedly since september reaching almost 900 basis points in late october, before declining to 700 basis points on november 25. increased risk aversion has led to sizeable capital outflows from emerging markets in the last two months, resulting in an overall depreciation of domestic currencies. as you may already know, following the 2001 financial crisis, turkey adopted an ambitious reform agenda to strengthen the financial sector and banking system. thanks to these measures, resilience of the turkish economy to external shocks has been improved significantly and the banking system in turkey has been relatively prepared for the current crisis, as witnessed during current financial turmoil. since securitized products are rarely used in the turkish banking sector, the ongoing financial turmoil has not put a marked pressure on local banks through that channel. in addition, there are no liquidity problems in the system. deposits have been stable and banks have adequate level of collateral in the form of government securities that can be used in the open market operations. however, considering the severity of the current crisis and turkey ’ s integration into the global economy, it won ’ t be surprising that the crisis has some effects on turkish banking sector. the general framework of the central bank ’

capable banks and financial institutions. on the other hand, the smaller banks would do well to harness their core expertise in order to better serve their respective market niches. the highly global and complex banking scenario leaves no room for complacency for all banking industry players. to survive, thrift banks must enhance their financial strength, conform to sound corporate governance practices and boost their competitive advantage by honing excellence in specific target markets. concluding remarks i would like to end my keynote speech by calling on all member institutions of the chamber to remain supportive of our policies and reform initiatives. the reform agenda that i have outlined to you today is a work in progress. in the past, you have taken a proactive role in the pursuit of genuine reforms in the thrift banking system. now is the time to reaffirm that commitment. there is a lot of work ahead of us, but with vision to guide us and with steadfast action, we can be assured of success in achieving our shared goal of building a stronger, more competitive banking system. thank you very much and more power to all of you!