Too Late For BitCoin But Right On Time For Turkey's Banks

  Date posted: 4th of December 2014

Bitcoin is certainly popular right now.  News channels are struggling to catch up with a currency that has existed, although often in the shadows, since 2009.  But, even as you wrap your head around Bitcoin, you should probably be taking a much longer look at investing in Turkey's banking system and real estate.

Why was Bitcoin created?

To understand Bitcoin is to understand the motivation behind its creation.  Bitcoin was, according to its Wikipedia page (http://en.wikipedia.org/wiki/bitcoin, a theory put forth by Satoshi Nakamoto in 2008 and became a reality in 2009. 

Simply put, Bitcoin is a virtual currency that is not tied to a government or conventional currency.  Bitcoins are worth what individuals are willing to pay for them and the individuals can use Bitcoins in complete anonymity.  This was a key feature for early adopters of Bitcoin and drove its early success.  However, the initial purchase of Bitcoins does require registration, so the entire system is not being used by 'ghosts'.

The recent explosion in Bitcoin values, from a few dollars to over two hundred dollars, is a function of two current news items that both benefit stable banking systems and real estate markets like those found in Turkey.

First, the United States has issued rules that appear to clear the way for legitimizing Bitcoin and the other digital currencies that are sure to follow.  Legitimizing Bitcoin means that the currency will shift closer to mainstream use.  The current slate of over 1000 businesses that will accept Bitcoin is sure to grow.

Let's bring it home a little for overseas home buyers, well we are an overseas property company after all...

Second, the banking system in the nation of Cyprus has been rocked by a one-two punch.  The first blow came because of heavy Greek bond investment, the Cyprus banking system and whole economy becoming a near casualty of the fallout from the economic troubles surrounding Greece.  When Greek bond values went into the toilet in 2011, Cyprus banks had no way to cut their losses.  This continued instability in many country's banking sectors has created a curiosity for a different form of currency.

Then, the overall credit rating of Cyprus was changed to 'junk' status.  There were several public reasons given for the downgrade, but chief among them was that the Cypriot banking system appeared to be very willing to allow foreign deposits in its banks without asking too many, if any questions.  Some of the largest depositors have less than stellar reputations, ties to organized crime, etc.

Cyprus has asked the European Union (EU) for help as an emergency loan from Russia is running out of funds and the EU is working on a bailout to stabilize the small nation's economy.  The tiny nation has also proposed a tax on bank deposits, but this will probably not fly with a Russian loan hanging over their heads and much of the depositors hailing from the Soviet Union.  This is not unprecedented as Cyprus follows in the footsteps of Greece, Ireland, Portugal and Spain, who all needed help from the combined forces of the International Monetary Fund (IMF), the European Commission (EC) and the European Central Bank (ECB) to stave off insolvency. 

But, Bitcoin is a long, long way from becoming a global currency with lots of adoption hurdles left to climb over.

Are Turkey's banks safe?

However, despite lots of problems for its neighbour-states, the Turkish banking system has been quietly swimming along, paralleled in success only by the Turkish real estate market.  While most of the world's banking systems have been happy to, at best, stay financially neutral, the Turks racked up a 12.6% banking sector growth rate in 2012 (http://www.hurriyetdailynews.com/turkish-banking-sector-grows-126-pct-in-year.aspx?pageID=238&nID=41075&NewsCatID=345).

The why behind this growth is probably more telling for a would-be depositor or investor than the growth itself, especially when asking if Turkey's banks are safe.

Turkey has worked extremely hard to bring transparency and fair regulation to its banks.  Three of Turkey's biggest banks are owned by the government and used primarily by government employees and others who benefit from subsidized loans and other banking instruments, but there are many others to choose from.

The Turkish banks have also benefited from a new and large external investor base, especially institutional real estate investors including hedge and pension funds from around the world.  As many nations have had near-death experiences in their real estate and financial markets, Turkey's economy has shown consistent and stable growth.  This growth was noted by institutional investors in 2011 and the inflows continue.

With their stability, Turkish banks have been able to insulate themselves from some of the European Union (EU) problems by spreading their loan needs to a wider group of foreign lenders, including the Far and Middle East markets.  This broad loan portfolio seems to give the Turks a tactical advantage in the near term and a broad and secure base for the long term.

What should be most interesting to outside investors is Turkey's consumer sector.  Turkish consumers are quickly acclimating to capitalism and this means that they are reaching to their local and national banks for loans and low interest rates, but this trend is still in its earliest stages.

As the individual borrower population expands, Turkish banking will benefit in two ways.  First, average Turks will help to further push the real estate market with their demand coupled with foreign real estate investment in Turkey.  And, as an added bonus, consumer lending is almost always more profitable than corporate lending, so the dollar for dollar return on the consumer loan portfolio should be much higher.

The Turkish government is also fueling investment by speeding permitting requirements for large residential and commercial real estate projects as well as clearing the way for foreign real estate investment and creating the opportunity for foreigners to open Turkish bank accounts. 

If you are an institutional or individual investor, your choices are the same.  You can risk further volatility by pushing your money into the other European markets.  You can also invest in the U.S. stock market that is very overdue for a downward correction and has shown a history for falling fast on bad news.  Or, you can buy Turkish banking securities.  Finally, you can purchase real estate investment property in Istanbul or other beautiful Turkish real estate markets and increase your yield with low interest financing from the Turkish banks.

Bitcoin is getting a lot of press and it's fun to watch, but a serious investor is looking for a smarter, long term investment.  If your strategy is to follow the big dogs, you’ll find them in Turkey, buying real estate and investing in Turkish banks.