Managing Your Cash in Turkey

In light of its pending application to the EU and position as a member of G-20, together with its geographical proximity to, and large amount of trade with, Europe, it would be perfectly logical for the global treasurer of a multinational company with a Turkish subsidiary to expect to include Turkey in its pan-European cash management solution.

However, this treasurer would soon find out that this goal, however logical, is quite unattainable. The governing regulations and current cash management practices come together to set Turkey apart from the rest of Europe. While some authors on this subject have described the cash management practices and banking market in Turkey as ‘undeveloped’, I beg to differ. Unlike the other developing economies in the region, Turkey has a well-established banking infrastructure extending, but not limited, to the field of cash management.

A World Apart

So, if it has a well-established infrastructure, what is it that makes it impossible to implement a pan-European cash management solution in Turkey? There is a long list, but we can sum it up in four categories:

Regulatory issues

Current regulations and tax liabilities render notional and even zero balance cash pooling difficult and sometimes infeasible in Turkey. Various forms of domestic and cross border cash pooling are integral to the backbone of almost every cash management scheme. That is why, for many corporate treasurers, cash pooling is perceived as synonymous with cash management. Once this option is ruled out for a company, it is easy to assume no form of cash management is possible. But this is not true. It is possible to manage cash, or even invest short-term liquidity well and profitably in Turkey. Achieving this through conventional, automated, low cost and pan-European methods, on the other hand, is another matter.

Regulatory constraints apply to more than just cash pooling. Cross-border payments, imports and exports have been strictly bound to observe certain rules and regulations, which made it impossible to address them within the general scope of payments. Having said that, it is important to note that the government has taken recent steps to relax these measures on both counts.

Lack of standards

In most European countries, electronic payment standards have been established a long time ago. In Turkey, however, paper transfers are still the norm rather than the exception, and a country-wide payment standard is still years ahead.

So, how does not having an established electronic payment standard translate into a treasurer’s life? First of all, it means each accounting system, each bank, even each company, may have their own version of data file formats over which they are willing to share data. The file formats vary, not only across banks and companies, but also according to payment types. Add the lack of specialised independent electronic payment solution providers, and you will see why many global treasurers left their Turkish subsidiary to manage its cash on its own until very recently.

The effect of recent economic history on existing market practices

This is perhaps the most intangible among the four categories that set cash management practices in Turkey apart from those in the rest of Europe. Now that the regulations are somewhat relaxed, interest rates have come down, inflation is under control and growth is in a more-or-less stable positive range, it is easier to picture Turkey in a European framework. Perhaps that is why more and more global treasurers have started integrating their Turkish subsidiaries into their global or pan-European schemes. Turkey’s rising importance as a market and production base certainly has something to do with this.

It is very easy to forget that just a few years ago, the Turkish economy was characterised by double-digit inflation and even higher interest rates with a high level of volatility. Turkey’s recent economic history has left its mark on today’s market practices and bank products.

Let us take overnight bank deposits as an example. This is by far the most popular short-term liquidity investment solution among all corporate and commercial customers in Turkey. In the light of relatively stable, single-digit deposit rates, and taking into account the amount of paperwork and manual labour it involves, this practice would doubtless appear primitive, costly and unnecessary to any observer. This curious habit will only make sense when you take into account the fact that, only nine years ago, a company could increase its investment by as much as 120% over just one night. This is difficult for companies to forget.

Likewise, the extensive, although decreasing, use of post-dated cheques in Turkey is partly the result of a long-since altered cheque law, which used to make cheques a cost-efficient and secure way of managing receivables. Although the level of security has been lowered since the change in the law, the use of post-dated cheques, along with the need for specialised bank solutions, remains an integral part of Turkey’s cash management universe.

The Turkish market has been very competitive for banks for decades and, with remarkably high interest rates, it hasn’t taken long for many of the banks to recognise the importance of float revenues and start working on their cash management offers. Backed up by their strong technological infrastructure, local banks started coming up with highly specialised cash management solutions developed for specific local needs as early as 1990. As a result, there exists a wide range of local products, specially designed to meet the needs of companies operating in the Turkish market. A number of these solutions have even won awards in the global arena for their innovation. It would be a lost opportunity for a global company to forgo the benefit of products that are highly suited for their needs just because these products are market-specific.

Lack of co-ordination between banks

Last, but not least, a key differentiator between Turkey and most of Europe is the fact that bank partnerships, which help corporates to cover most of their cash management needs through one bank, are virtually non-existent in Turkey.

Additionally, interbank cash management products are quite limited. For example, both direct debits, and the business-to-business (B2B) automated collection and buyer finance system, which is another of the highly specialised and efficient local products, work among the accounts of a single bank. The use of MT 101 and MT 940 messages are extremely limited, if not unheard of. Interbank credit card clearing is subject to high commission. Affinity card programmes, which are very popular among consumers, allowing them to pay in installments as well as earn bonus points which they can use in later purchases, are not available for clearing through Interbank Card Center. Without bank partnerships to rely upon, and with the limited availability of interbank products, many corporates need at least three to four banks to manage their cash flows effectively.

Setting the Stage For a Successful Cash Management Scheme

Surmounting these difficulties and coming up with an optimal cash management scheme without implementing a pan-European cash management solution in Turkey is not necessarily simple. A multinational company will need to find out the local needs of its Turkish subsidiary and the solutions offered by various banks locally, to consider how well each solution will serve its central requirements and priorities, then choose accordingly. Unfortunately, that is much easier said than done. Time constraints, language barriers, lack of common terminology between global treasurers and their local counterparts, all serve to hinder proper understanding of the situation, and therefore an effective and timely decision. Making use of independent payment specialist companies under an advisory capacity, could be an appropriate, if costly, course of action, were they to exist in the Turkish market. Closest in approach to payment specialists are enterprise resource planning (ERP) solution providers, which are sometimes approached with the hopes of killing two birds with one stone. The results are not only disappointing but also expensive.


A multinational company should work together with a local bank with a strong cash management offer, or a global bank with a strong local presence, who will have a deep understanding of the local market and also know the needs and be accustomed to the terminology of the global treasurer to unearth the solution best suited to serve the company’s needs. And the company should accept the fact that, in some cases, this bank may have to be different from their global house bank.


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