By Ben Holland
Feb. 26 (Bloomberg) -- Suzan Sabanci Dincer was an 8-year- old schoolgirl when she began visiting the main office of her family's bank, Akbank TAS, during summer vacations. In the 1970s, she befriended Medeni Berk, Akbank's chief executive officer at the time.
``He would tell me that a good banker has to know very good mathematics and would give me all these math questions,'' Sabanci Dincer says. ``I'd carry his files and do the homework he gave me, and he'd reward me with chocolates.''
The prize today for Sabanci Dincer, 42, is leadership of Turkey's $200 billion commercial and consumer lending market, which grew 25 percent last year. She's now the managing director of Akbank, Turkey's biggest financial institution by market value, and is being groomed to succeed her father, Chairman Erol Sabanci, 69.
The Sabancis have steered the bank through a series of national financial crises, turning it into Turkey's most profitable company, with net income in 2007 of 2 billion liras ($1.7 billion) on revenue of 8.8 billion liras, according to the Istanbul Stock Exchange. The bank's management won a vote of confidence from New York-based Citigroup Inc., which paid $3.1 billion for a 20 percent stake in October 2006.
The latest challenge for the father-daughter team is to overcome the global fallout from the U.S. subprime mortgage crisis, which has sent shares of emerging-market companies tumbling. The MSCI Emerging Markets Index, which tracks more than 900 stocks from South Korea to Brazil, has fallen 7 percent this year.
Turkey Shares Hit
Turkey has been even worse hit. Akbank shares fell 22 percent in the same period, tracking a 19 percent decline in the benchmark Istanbul ISE 100 Index. The ISE rose 42 percent in 2007.
``It will be an interesting year, a challenging year,'' the British- and U.S.-educated Sabanci Dincer says. ``There might be less appetite for investment and lending, and this will make emerging-market banks more conservative. We'll have to look at the terms of our lending policy very carefully. But if Turkey doesn't mess up in terms of the economy, there's still a tremendous potential.''
Turkey's economy grew an average of about 7 percent a year from 2002 through 2007, and that was good news for Sabanci enterprises. The family company, Haci Omer Sabanci Holding AS, named after Sabanci Dincer's grandfather, had estimated sales of $14 billion last year, accounting for 3 percent of Turkey's gross domestic product. Sabanci Holding controls 70 companies with 57,000 employees and operations in 18 countries. In addition to banking and insurance, it has stakes in energy, retail, plastics, tobacco, auto sales and cement.
Wal-Mart Connection
One division, headed by Sabanci Dincer's husband, Haluk Dincer, 46, operates a joint venture with Paris-based Carrefour SA, the world's biggest hypermarket operator after Wal-Mart. The Sabanci conglomerate is building coal-fired and hydroelectric power stations. It also sells cars for Tokyo-based Toyota Motor Corp. and makes tires with Tokyo-based Bridgestone Corp.
Istanbul-based Akbank is the group's crown jewel, contributing about 80 percent of Sabanci Holding's operating profit. The global downturn shouldn't hurt earnings at Akbank and other Turkish banks, says Patrick Lemmens, who helps manage more than $3 billion of stocks at ABN Amro Asset Management in Amsterdam, including shares in Akbank's listed insurance unit Aksigorta AS.
``There's still good lending growth going on in Turkey,'' Lemmens says. ``It translates into earnings growth of 15 or 20 percent a year. Globally, there aren't many banks that can get that -- and that are trading at eight or nine times earnings. The longer-term opportunity is there.''
Growth Slows
Akbank increased profit last year even after loan growth slowed in the third quarter and the cost of deposits rose. The lender is better equipped than most of its peers to maintain high growth rates, says Idil Dagdelen, an Istanbul-based analyst at Deutsche Bank AG.
``They have the capital, and they're not short of equity to fund a growing loan book,'' she says. ``In a couple of years, we'll probably be talking about the need for capital injections in the sector, but not at Akbank.''
Lehman Brothers' October report says that Turkish bank lending will grow by 35 percent in 2008 and 31 percent the following year, as the economy grows and borrowing costs decline along with interest rates. To maintain that pace, Turkey will have to avoid a repeat of the kind of economic meltdown that has disrupted its economy five times in the past two decades.
2001 Crisis
The most recent crisis started in 2001, when the lira lost more than half of its value against the dollar, inflation rose to 73 percent and banks fell deeply into the red. From 1999 to 2003, the government nationalized 21 failing banks. Akbank, which posted the only net loss in its history in 2001, was spared.
Since then, the government of Prime Minister Recep Tayyip Erdogan, who took office in 2003, has transformed Turkey's economy. He has reined in spending, cutting the budget deficit to less than 3 percent of economic output last year from 16.5 percent in 2001.
Erdogan has reduced expenditures on money-losing state- owned companies by selling off $22 billion of such firms. With budget deficits under control, inflation, which averaged 70 percent per year in the 1990s, fell to 8.2 percent at the end of January, close to a three-decade low.
Lower interest rates have spurred a boom in consumer borrowing by Turkey's burgeoning middle class. Home loans surged more than 10-fold in the past three years, to 32.2 billion liras from 3.15 billion liras, and overall bank lending rose 25 percent last year to 229.5 billion liras.
`Attractive Market'
``It's always been a very attractive market, with the size of the population and growth rates,'' says Shirish Apte, Citigroup's head of corporate and investment banking for central and eastern Europe, who negotiated the purchase of the U.S. bank's 20 percent Akbank stake. ``We always knew that at some stage Turkey would get it right, and this government has done all the right things.''
Citigroup isn't the only international bank looking for profits in Turkey's financial system. Paris-based BNP Paribas SA, Amsterdam-based ING Groep NV and Milan-based UniCredit SpA have all bought stakes in Turkish banks, betting that the country's young population and progress toward European Union membership will bolster incomes.
Even after the boom of the past five years, which has seen per-capita income grow to almost $7,000 from $2,160 in 2001, Turks still earn less than one-third of the EU average. Only about half of Turks who buy homes take bank loans -- the rest use cash -- and a third of Turkey's autos are purchased with cash.
Consumer Boycott
Given the turmoil in the economy during most of Turkey's postwar history, it's no surprise that both borrowers and lenders shunned consumer loans, Sabanci Dincer says.
``We had high inflation, high real interest rates, unstable governments and no proper consumer finance,'' she says. ``Nobody wanted to lend to individuals at those high rates because it would be very difficult for them to repay the loans. The big banks were just collecting deposits and giving them to the government, which was the main borrower.''
The job of the banker in the era of high inflation was to call the direction of bond markets, something Erol Sabanci was very good at, says Elif Bilgi Zapparoli, CEO of EFG Istanbul Securities and a classmate of Sabanci Dincer's when she was a student in the Master of Business Administration program at Boston University in the early 1990s. Consumer loans, she says, weren't a priority.
Tamed Interest Rates
``Interest rates were just too high for the consumer,'' says Ozen Goksel, 69, a 45-year Akbank veteran who served as CEO from 1994 to 2000 and now sits on the bank's board. ``Who'd take out a loan at 3 or 4 percent a month? So we wouldn't lend people money to buy a car or a house. We'd lend money to the companies that sell the cars or build the houses, and they'd carry the risk. Now the banks are carrying it.''
Turkish banks held just 2.31 billion liras in consumer loans at the start of 2002; on Feb. 15 the figure was 68 billion liras. Loans of all kinds made up a quarter of Akbank's assets in 2002, with government bonds accounting for much of the rest. At the end of 2007, the bank's loan book had risen to 40 billion liras, more than half of its assets.
``Ten years ago, Akbank was basically a big bond portfolio,'' Deutsche Bank's Dagdelen says. ``They've done a great job transforming the bank into a proper retail bank. They used that period after the 2001 crisis, when not even a leaf moved in the market, to invest in technology, train their people and transform the bank, and it worked.''
Father-Daughter Contrast
Sabanci Dincer is the executive in charge of that transformation. She's the right person for the job, says Ilter Turan, a professor of political science at Bilgi University in Istanbul who went to school with Erol Sabanci and advises Suzan on speeches. ``The father is a very quiet, very private person,'' Turan says. ``Suzan is extremely outgoing, very communicative, warm.''
Sabanci Dincer says it's now important for bankers to get close to their customers. ``It's more of a relations business,'' she says. ``We have to be more consumer-oriented, catch the trends, understand the clients.'' To do that, she visits at least a dozen Akbank branches every month.
Her branch managers are telling her that borrowers don't entirely trust their bankers and prefer to do business with them quickly and from a distance. So Akbank has begun taking loan applications by mobile phone, with approval or rejection promised within 20 minutes.
``In Turkey, unlike in Europe, it's a new thing that people get consumer loans from banks to buy whatever they're going to buy,'' Sabanci Dincer says. ``Turks were scared to come into a bank's branch and ask for a loan; they were scared of getting rejected. With a mobile phone, it's very private.''
British Educated
Sabanci Dincer learned her social skills at the Heathfield School for Girls in north London, where she attended high school. Heathfield also taught her discipline and independence, she says, and she will likely send her son, Haluk, 11, and daughter, Ceyda, 9, to an institution that teaches similar skills.
``It's really important nowadays that people learn to stand on their own two feet, without their parents,'' she says. ``It stretches the character.''
Sabanci Dincer got a finance degree from London's Richmond University and then earned a master's degree in finance from Boston University before joining Akbank's joint venture with Dresdner Bank AG and BNP Paribas. In 1994, she moved to Akbank central. She's been on the bank's board since 1997.
``She has lots of ideas, she forms good relations with everyone around her and she'll always consult as many people as possible, at all levels, before making a decision,'' former Akbank CEO Goksel says.
Money in a Jar
Bank loans of any kind were virtually unknown in most of Turkey when Haci Omer Sabanci was born, around 1906, in the village of Akcakaya in Kayseri province, on the rocky plateau that stretches across the central part of the country. Turks kept their savings ``in a jar buried at the foot of a fig tree,'' according to ``Haci Omer,'' a biography of Sabanci Dincer's grandfather by Turkish journalist Sadun Tanju.
While still a teenager, Haci Omer set off on foot to seek work in the cotton-growing province of Adana on Turkey's southern coast. His first job there was trampling cotton to compress it for packaging, which involved jumping up and down on the cotton as it fell from machinery above that separated it from its seeds.
Within a few years, Haci Omer became a labor broker -- searching out others to do the jumping --- and then a broker of the cotton itself. By the 1940s, he had bought three cotton oil and yarn factories in Adana and the neighboring province of Mersin.
Akbank Founded
In 1948, Sabanci and 82 partners put together $2 million and founded Akbank. Haci Omer was both the founder and one of the first borrowers: He took out a loan of 285,000 liras to expand his business, according to a 1998 history of the lender by Zafer Toprak, a professor at Bogazici University in Istanbul. Over the next decade, Sabanci steadily bought out his partners, becoming the majority shareholder in both Akbank and Bossa TAS, a textile company that now exports to more than 50 countries. Its denim is used by designers at Gap, Tommy Hilfiger and Versace.
Today, the Sabanci family presides over a corporate empire with an unusual distinction: the large number of women in its executive ranks. In addition to managing director Suzan Sabanci Dincer, three deputies to Akbank CEO Zafer Kurtul are women. The chairwoman of Sabanci Holding is Guler Sabanci, daughter of Erol's oldest brother, Ihsan. Two more of Erol's nieces are also on the holding company board.
Guler has been an outspoken advocate of keeping Turkey secular. Opposition political parties have accused Erdogan's government, which has roots in a banned Islamist party, of seeking to expand the role of Islam in public life.
The Headscarf Issue
The government has, for example, eased a ban on the wearing of Islamic-style head scarves at Turkey's universities. The wives of both Erdogan and President Abdullah Gul wear scarves.
Neither Suzan nor Guler Sabanci do. Guler points to her own career as an example of the strength of Turkey's secular system.
``I and working women like me are the product of an 83- year-old republic, and secularism and democracy are instilled in our DNA,'' she told Bloomberg Television in August.
Guler's cousin Suzan says the fact that she's a woman in a society that is increasingly embracing Islamic tradition has not affected her rise.
``I never felt for a moment in the family that there was a boy-girl separation,'' she says. ``As children, we were all brought up with business; it was in the air.'' What her father emphasized, she says, was that there would be no sinecures for family members.
``This was not accepted in the family,'' she says. ``My father said, 'Suzan, you don't need to work, you have everything. But if you are going to work, you have to work with discipline.'''
Credit Crunch Impact
Sabanci Dincer's challenge for the year ahead is to minimize the impact of the global credit crisis, which is making it harder for emerging-market banks to raise capital abroad and may slow growth.
``Now the big boys are having trouble, and when they start coughing, everyone catches a cold,'' Sabanci Dincer says.
Once Akbank recovers from its cold, Sabanci Dincer and her colleagues must make some strategic decisions concerning where to take the bank next. Foreign acquisitions are one possibility.
``I'd give the example of the Spanish banks, like Banco Santander,'' she says. Santander has grown sixfold in size over the past 10 years through overseas acquisitions.
``They've been an incredible success story, fast moving and dynamic, first in Spain and then in the Latin market, and also in Europe.''
If she can get the math right -- and she has been doing that since she was 8 -- Sabanci Dincer would like nothing better than to make Akbank the bank to beat in eastern Europe, central Asia and beyond.
To contact the reporter on this story: Ben Holland in Istanbul at bholland1@bloomberg.net
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