Factoring serveices in the world and turkey

FCI %5 %4 %4 %4 %4 Rengin EKMEKÇİOĞLU Turkish Factoring Association Rengin EKMEKÇİOĞLU 6... Rengin EKMEKÇİOĞLU Turkish Factoring Association Rengin EKMEKÇİOĞLU 2.. Rengin EKMEKÇİOĞLU Tur

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Rengin Ekmekçioğlu CEO of Yapı Kredi Faktoring A.Ş.

President of Turkish Faktoring Association

World Bank Faktoring Conference, Warsaw October 23-24,2003

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1988 First Factoring Operation within a Bank.

1990 First Factoring Company

1992 First Foreign Investment in Factoring

“ Heller + IFC+ Yapı Kredi + Interbank joint venture.”

1994 First Factoring Regulation

Law-empowered Decree-no: 545 and the “Regulation related to the Principiles of Establishment and Operations of factoring Companies.”

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1999 Increasing Export Factoring Volumes.

2002 Turkey becames number two in Export Factoring among FCI

members

2003 New Factoring Law?

1995 Growth: Many players in the market.

2002 Turkish Eximbank vs Export Factoring

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555 541

498

787

575 529

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FCI FACTORING TURNOVER (in millions of usd)

28,927 22,614

21,718 19,405

15,769

326,336 262,566

255,404 225,948

203,887

277,122 245,353

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FACTORING TURNOVER OF FCI AND WORLD

(in millions of usd)

245,353 219,656

0 100,000

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INTERNATIONAL FACTORING TURNOVER OF

FCI AND TURKEY (in millions of usd)

21,718 22,614 19,405

15,769

28,927

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

1998 1999 2000 2001 2002

FCI TURKEY

COMPARED FACTORING TURNOVER

1998 1999 2000 2001 2002 INT TURKEY /INT FCI %5 %4 %4 %4 %4

Rengin EKMEKÇİOĞLU Turkish Factoring Association

Rengin EKMEKÇİOĞLU 6

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FACTORING TURNOVER IN TURKEY (in millions of usd)

990

5,943

1,260 921

748 750

3,413 2,700

4,518 4,000

3,690 4,750

Growth of factoring volume in Turkey

Turkish Factoring Association Statistics

Rengin EKMEKÇİOĞLU

Turkish Factoring Association

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FACTORING TURNOVER IN TURKEY

(in millions of usd)

4,673 3,690

5,943 5,266

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Country Total International International / Total

United Kingdom 168,741 6,363 4% Italy 141,750 5,250 4% U.S.A 113,925 4,200 4% France 71,400 5,775 8%

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EXPORT/TOTAL FACTORING VOLUME

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ACTIVITIES THAT HAVE BEEN ACCOMPLISHED SINCE THE ESTABLISMENT OF THE TURKISH FACTORING ASSOCCIATION

1 Preparation of a uniform standart factoring agreement.

2 Having factoring risks included in Central Bank Risk Centralization system.

3 Obtaining Resource Utilization Support Fund (KKDF) exemption over the

foreign funds provided for export funding.

4 Issuance of a declaration about stamp duty, than having the stamp duty law

modified.

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5 Issuance of a declaration confirming that factoring companies are financial

institutions, in order not to implement the expense limitation clauses of

corporate tax law (Corporate tax General Declaration no: 54, dated:06.12.1996.

6 Issuance of a declaration ensuring that banks should properly follow the

instructions of factoring companies while issuing F/X Purchase Certificate (DAB)

7 Drafting a law concerning factoring companies.

8 Preparation of Uniform Chart of Account.

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9 Conducting a publicity advertisement campaign.

10 Organizing seminars and symposiums.

11 Organizing training programs.

12 Construction of a web site for the association.

13 Continuous representation of the sector in all government offices.

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Association Members Total Market

Market Share

of T.F.A.

2001 Assets 1.064.533.782 1.522.530.313 70%

2001 Incomes 335.933.964 429.783.428 78% 2002/09 Domestic volume 2.812.099.710 3.335.442.297 84% 2002/09 International volume 1.043.197.260 1.074.790.326 97% 2002/09 Total volume 3.855.296.790 4.410.232.623 87%

Turkish Factoring Association share in the market (in millions of TL)

Turkish Factoring Association Statistics

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PROBLEMS OF FACTORING SECTOR IN TURKEY

1 Need for new factoring law

Factoring transactions are being carried out within the frame of law-empowered Decree No, 545 About Borrowing Money Transactions and Regulations based upon this decree This Decree affects the sector negatively from two aspects.

Since, Decree No 545 is also arranging simple money lenders, factoring transactions based upon account receivables sourced by invoiced sales are confused with borrowing transactions and as a result of it the factoring image is negatively influenced

On the other hand, since factoring is perceived as a borrowing transaction it is being defined in

a form weighted with a financial aspect Whereas function of the service given, another words, services such as debt collection, receivables management, protection against credit risks are the most important feature of the factoring function have been neglected As a consequence of this special feature factoring is different from simple money lending, for this reason the name

of financing supplied is “pre-payment” This situation shows that a new definition is required for factoring to include all the functions contained wherein

A new law to be passed for factoring can eliminate all these problems

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2 Banking and Insuranc Transaction Tax

Within the current legal framework possible financing sources to be used by factoring companies consist of their own capitals and loans to be obtained from domestic and international banks Factoring companies are paying 5% BITT for domestic bank loans and 5% BITT applies when this source is used by their clients While this situation increase financing cost from one side, from the other side an unfair competition arises because banks that are allowed to make factoring transaction have the opportunity to pay the same tax as 1% In order

to offer funds with more convenient cost to SME’s and foster their production, lowering BITT rates on bank loan transactions of factoring companies, to the rate of 1% as in the loan transactions between banks, will at least eliminate the existing unfair competition

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3 Provisions

One of the most important risks of factoring sector is the situation of late back payment or payment and/or impossibility of indemnifying guarantees given for debtors There is no judicial measure existing to lessen the risk that the factoring sector encounters Banks being together within the finance sector have the possibility to separate provision for loans unreturned according to the Banking Law, and to deduct these provisions from their taxable amount For factoring companies making transactions of the same nature, a new law, can ensure provisions for doubtful receivables to be entered as expense acceptable by tax laws, which in turn create equality between the institutions

non-Rengin EKMEKÇİOĞLU

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4 Credit Insurance

Domestic Transactions

Credit insurance has recently started in Turkey But, according to regulation on this subject, factoring companies are not entitled to participate in the credit insurance policies as third party This condition prevents to carry out guaranteed domestic factoring transactions (non- recourse) In case this problem is solved, factoring companies, as in the EU countries, will have the possibility to give domestic guaranteed factoring services and will lead to the development of the sector

One of the most important legs of export factoring transactions is their correspondent abroad guaranteeing export payments Correspondents are generally factoring companies in the country of the importer A part of exports of Turkey is being done to the countries where factoring techniques are not started to apply yet such as new Turkic Republics of the former Soviet Union and this situation impedes making export factoring to these countries To include factoring companies to Eximbank export insurance will be the only reasonable solution

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5 Risk Evaluation

Information regarding bad checks and protested bills are very important from the point of financial risk evaluation Factoring companies are not able to benefit from this information because of the word only “banks” existing in related laws By changing related laws, to ensure factoring companies, to benefit from this information will be useful

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6 Invoice

According to today’s legal substructure, the basis of factoring transactions are current and expected receivables rising from sales of goods and services based on invoices or other evidencing documents Within this frame, invoices and other evidencing documents are a main document that supports factoring However, according to current laws, because of evidencing and proof power of the invoice solely, from the aspect of collecting credit borne by whereof, at judicial authorities, depends upon decision to be given at the end of long lasting lawsuits, factoring companies are obliged to take a bank check or commercial bond as means of payment together with invoice or other evidencing document upon which the credit alienated is based This situation, additionally, causes factoring to be perceived as borrowing money to provide finance against bank check and commercial bond and thus prevents development of real factoring Solution of the problem will be possible by legal provisions to increase present validity of the invoice and to bring whereof to a state holding a legal sanction, as in the bank check and commercial bond, in case of the debt is not paid In case that such a legal arrangement is not proper for all invoices, making the said arrangement only for invoices, being support of a credit alienated with the purpose of financing, will convey the problem to a solution too

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7 Uniform Chart of Accounts

There is no uniform chart of accounts that is obligatory to apply to factoring companies Since this situation prevents standardization in the sector, Factoring Association and Independent Audit Association formed a study group to prepare a uniform chart of accounts for factoring companies and this group has formed a draft of chart of accounts at the end of a long lasting study Through negotiations done with the Treasury Undersecretary the problem is being tried

to reach a solution

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8 Benefiting From Interbank

Factoring companies are not able to benefit from Interbank funding systems However, for the said companies having no possibility other than bank loan to obtain funds within the frame of legal substructure of present days, benefiting from Interbank would be an important factor to support development of factoring Additionally, offering excess fund existing at factoring companies to the finance market by that way will be useful for the said marked and this is an issue not to be undervalued at every instant.

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WHAT IS THE FUTURE OF FACTORING

INDUSTRY

IN TURKEY?

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