The Effects Of Public Sector Borrowing Papers On The Commercial Bank’ S Fiscal Tables

Tez (Yüksek Lisans) -- İstanbul Teknik Üniversitesi, Fen Bilimleri Enstitüsü, 1998Thesis (M.Sc.) -- İstanbul Technical University, Institute of Science and Technology, 1998Türk Ekonomisi uzun yıllardır ekonomi politikalarındaki aksaklık nedeniyle yüksek faiz ve enflasyonist baskı kıskacı altında bulunmaktadır. Başarılı bir vergi reformunun gerçekleştirilememiş olması ve kamunun harcamalarını karşılamak için yeterli kaynağın tahsis edilememiş olması nedeniyle kronik hale gelen bütçe açıklarının finansmanında borçlanma araçlarına ağırlık verilmiştir. Ancak bu durum hem borç faiz ödemelerinin bütçeye yükünü artırmış, hem de mali piyasalardaki kalabalıklaşma etkisini ve enflasyonist baskıyı beraberinde getirmiştir. Bu çalışmada bütçe açığının finansmanı amacıyla çıkarılan kamu borçlanma belgelerinin genel ekonomi ve özellikle de ekonominin baş aktörü ve kamunun birincil fon kaynağı durumunda olan bankaların mali yapılan üzerindeki etkileri araştırılmıştır, ilk bölümde çalışmanın amacı, kısıtlan ve izlenen yöntem hakkında bilgi verilmiştir. İkinci bölümde devletin neden borçlanmaya başvurduğu, iç borçlanma türleri ve kaynaklan ile borçlanmanın çeşitli kesimler üzerindeki etkileri anlatılmıştır. Daha sonra Türkiye' de yıllar itibariyle iç borçların nasıl bir gelişim gösterdiği çeşitli tablolarla da desteklenerek anlatılmıştır. Üçüncü bölümde devlet iç borçlanmasının, devletin en önemli fon kaynağı konumunda olan bankaların mali yapısı üzerindeki etkileri belirlenmeye çalışılmıştır. Bu amaçla öncelikle bankaların aktif-pasif yapısı tanıtılarak, bankaların çeşitli kaynaklardan elde ettikleri gelirler ve karlılık ölçümleri anlatılmıştır. Daha sonra 1980' li yıllarda yaşanan finansal liberalizasyon sürecinin bankacılık sektörüne olan etkileri incelenmiştir. Bankaların yatırım politikaları da araştırılarak, hangi unsurlara dayanarak menkul değerler portföyünün kompozisyonunun belirlendiği ve bu portföyde yer alabilecek menkul değer çeşitleri tanıtılmıştır. Dördüncü bölüm olan uygulama bölümünde kamu borçlanma belgelerinin bankaların karlılıkları ve gelir yapılan üzerindeki etkileri araştırılmıştır. Bu amaçla bilgisayarla Limdep programlama dilinde regresyon analizi yapılmıştır. Türkiye' de kurulmuş bulunan 69 bankanın 1988-1996 yıllarına ait bilanço ve gelir tabloları incelenerek çeşitli oranlar bulunmuştur. Bankaların çalışma sürelerinin farklılığından doğan veri yetersizliğini gidermek için analizde Panel Data yöntemi uygulanmıştır. Bankaların en önemli üç gelir kaynağı olan menkul değerler portföyü, krediler ve komisyon gelirlerinin banka karlılığı üzerindeki etkisinin derecesi ve yönü saptanmaya çalışılmıştır. Elde edilen sonuçta bu üç gelir kaynağının karlılık üzerinde birbirinden oldukça farklı etkilerde bulunduğu gözlenmiştir. Sonuç kısmında da kamunun sermaye piyasaları, özellikle de bankalar üzerindeki borçlanma ihtiyacındaki artıştan doğan baskısının azaltılması için çeşitli önerilerde bulunulmuştur.In recent years, governments use borrowing intensively with the other sources such as taxes, in order to perform basic economic functions. We can define borrowing as obtaining the taxes that will be taken in the future. The fiscal policy of government is determined by budget, which shows governments income and expenditure balance. In this budget, if incomes are greater than expenditures, budget surplus occurs, on the other hand if opposite, budget deficit occur. This situation determines the amount of the government' s lending or borrowing. The reasons of borrowing differ according to the countries and their economic and social conditions. Government makes various public investments as an economic and social obligation. If the volume of the obligatory public expenditures exceeds the volume of the taxes and other incomes, a budget deficit occurs, so borrowing from internal and external sources becomes vitally important. When sometimes economic conditions becomes floating, government uses borrowing policy as a fiscal tool. In developing countries such as Turkey, usually total demand is greater than total supply and price inflation is experienced, because of the expenditure surplus in economy. In short period, tax is preferred in order to decrease the high demand, but government transfers the purchasing power itself, by selling bonds to public. The maturity of the selling must be long and the funds which is transferred by the government must be used in areas that will not encourage consumption. The basic factors which determine the capacity of government' s loan payment are national income level, taxable sources, expenditures, interest rates and public spending policy. When the rate of public borrowing to national income increases, interest that is required to pay loans will absorb an important part of national income. Because of the increasing capital and interest payments, government budget will have a great difficulty. The effect of the funds that are obtained from borrowing on total demand and national income, depends on the borrowing sources. In developing countries national income per capita is low and inflationary pressures are high, so the percentage of loans from private sector and people is low. Government prefers borrowing from banks, because the risk is low and they are safe, as well as effective. When stagflation occurs and credit operations are become slow, banks desire to invest funds in bonds. Also these securities are accepted as a guarantee in government bids. Borrowing from Central Bank increases emission and inflationary pressures, so it' s not preferred. In Turkey, tax incomes cannot be collected effectively and KİT s have always huge losses in their income table, so there is a chronicle budget deficit. In 1950' s inflationary policy is accepted, so internal borrowing has become an obligation after 1965. Borrowing from Central Bank has decreased, on the other hand borrowing by bonds and treasury bills has increased. With the reconstruction of the Turkish economy in 1980' s, radical changes have been observed in financial system. Capital markets have lost the function of the market as a fund source of private sector, and became a market which obtained fund to public sector. Public sector borrowing requirement has been increased continuously, and in order to finance the budget deficit government absorb fund from capital markets, especially from banks. This situation decreased the credit amount available for private sector, so credit interest rates increased. A lot of changes in the fiscal tables and productivity of the banks occurred. The fundamental aim of a bank is manage its assets and liabilities with a fixed and high net interest margin. It is required to make a preference between liquidity and productivity. Bank assets can be differed in four groups: Cash, securities, loans and fixed assets. In these groups securities and loans have greater importance. In order to increase income and obtain liquidity and diversification, banks use bonds and treasury bills. Bans allocate the funds using methods such as pool of funds approach, asset allocation approach and linear programming approach. There are a lot of factors that effect this allocation and productivity: Management, economic conditions, interest rates exc. In 1980 Turkish economy has a structural change. It is tried to increase the efficiency of the banking system and improve securities markets. Saving deposit and credit interest rates has become independent. At the same time legal reserve requirements have been changed. Interbank money market has founded and banks become free to have exchange position. Convertibility in Turkish money has been applied. Banking sector' s fiscal tools in GNP (Gross National Product) have been increased in 1980' s. The percent of government securities in total bank assets has also been increased. Because public sector has to obtain fund from capital markets, so the interest rate of the bonds and treasury bills increased. The crowding effect that is created by the public sector borrowing requirement is reflected in the bank' s balance sheets, so the funds that can be given to private sector decreased. Banks have to make a preference to invest funds between credits that are productive but risky, and government bonds that are rissoles and have a certain rate of return. The importance of the securities portfolio in bank balance sheet has been increased sharply in the high interest-high inflation period. In negative market conditions instead of invest in loans that have high risk, banks invest in government bonds. As a result credit supply has been decreased by credit rationing. The objectives of a commercial bank' s investment account are to provide the bank with diversification, income, tax benefits and a liquidity backup for the secondary reserve. Placing all the deposits of a commercial bank in loans would violate one of the fundamental principles of investment-diversification. If bank management feels uncertainty about liquidity versus income trade-off, it should lean in the direction of liquidity, because the investment account should serve as a buttress to the secondary reserve. Banks have held large part of the investment account in the form of bonds and notes. These securities have contributed a significant tax benefit primarily because the interest they pay is exempt from taxation by the government. The risks inherent in the investment account of a commercial bank are credit risk, market risk and interest rate risk. The credit risk of a security arises from the probability that the financial strength of the issuer will decline so that it will not be able to meet its financial obligations. The strength of an obligor' s economy becomes very important when the obligation is a revenue bond, which is supported by special revenues such as those from an electric power plant or a sewer facility. Maximum tax rates limit a government in supporting its debt. Some governments are limited in their borrowing activities, which might become very important if sufficient funds were not available from taxes for the payment of principal and interest. Market risk refers to the possibility that unforeseen changes in the securities markets or the economy may reduce the investment appeal of certain securities so that their sale is possible only at large discounts from earlier values. Interest risk is the risk that market value will decline due to interest rate increases. The rate of return on a fixed income obligation may be stated in terms of the coupon rate, the current yield, or the yield to maturity. The coupon rate is simply the contractual percentage per value the issuer must pay. The current yield is obtained by dividing the coupon return by the market price. The yield to maturity concept provides the best measure of returns on fixed income investments. This measure considers the coupon rate, maturity value, purchase price, and time to maturity. The formula that has been used to determine the approximate yield to maturity is: - annual amortisation annual dollar return from coupon + annual accumulation Yield to maturity = (current market price + par value) / 2 Bond prices and bond yields are inversely related. When bond prices are low, bond yields are high; when bond prices are high, yields are low. Investors who purchase bonds when interest rates are low, face the risk of a decline in value if rates increase. On the other hand, market appreciation will occur when interest rates fall. Even if the bonds recover in price, however the bank has still suffered an opportunity loss because it could not invest or lend the locked- in funds during the period of high interest rates. Banks devote extensive attention to avoiding or minimising such price declines in the investment account, for it must be a major source of liquidity during periods of credit stringency when interest rates tend to rise most. The risk generated by an aggressive investment account may be offset by conservative policies elsewhere. A bank has a portfolio of high-quality loans and relatively stable deposits can assume more risk in the investment account if it so chooses than can a bank without these characteristics. One of the acceptable methods of reducing risk in the investment portfolio of a commercial bank is by diversification. Diversification means holding an assortment of securities rather than very few. The diversification policy should consider maturity, geography, type of security and type of issuer. Another method is forecasting interest rate movements. If confidence is placed in a forecast of declining rates and the bank lengthens its maturates, a severe loss of liquidity and perhaps serious losses could result if interest rates subsequently rise. The process of forecasting interest rates begins with understanding the existing rate structure that is depicted by a yield curve. An important influence on the management of an investment portfolio is the pledging requirement imposed by governmental units. Most governments require commercial banks to hold securities of certain amounts and classifications to secure their deposits in those banks. The investment policy of a bank should be reviewed occasionally and modified as economic conditions change. Banks may feel "locked in" to securities that have declined in market value as a result of a sharp rise in interest rates. However, if a bank feels that it can tolerate a loss in the current year then taking a loss by selling a depreciated security may result in significant tax savings. Purchase of a similar security will keep the investment portfolio in approximately the same composition as it was previous to the sale, but with the added benefit of the tax loss. The National Bank examiners look closely at the investment account to determine the quality and hence the market value of the securities held. For this purpose, securities are placed in three categories: Investment securities, doubtful securities, and loss. Investment securities are those that meet the standards of quality laid down by law and the regulatory authorities. Doubtful securities mean that a credit problem exits and that the possibility of the obligor meeting interest or principal payments is questionable. Should a bank have doubtful securities in its portfolio, a portion of their book value is deducted by the examiner in his computation of the bank' s adjusted capital and reserves. Securities are placed in the loss classification if, in the evaluation of the bank examiner, a loss exits; consequently, these securities must be written off. Deficit financing of the federal government has created a huge national debt. This debt is represented by various classes of Treasury securities. Treasury bills are short- term securities with original maturates of three, six or twelve months. Because of their short maturates and high marketability, Treasury bills are the most liquid of all government securities and meet the liquid asset needs of banks very well. Bills are discount instruments; that is the investor does not receive separate interest payments, but instead earns interest income by paying a price below the face value of the bill and receiving face value at maturity. Because Treasury bills are issued in tremendous volumes, an active and efficient secondary market exists. Thus banks are not limited to purchasing newly issued bills and, in fact, buy most of their bills in the secondary market. Because of their superior quality and tremendous volume, yields on Treasury bills are pivotal rates in the money market. Changes in bill rates will likely affect rates on other types of short-term obligations since investors continually compare the relative attractiveness of investment alternatives. Treasury notes are issued with maturates of from one to ten years. They are issued with specified coupon rates. Several issues of bonds are callable prior to maturity. The bond will be called, of course, only if market rates at the time of call are below the coupon rate. In the application part of the thesis, it is searched that how the certain asset and income elements effect profitability and productivity of the banks. In these elements credits, securities and commission incomes are chose, because it is thought that, they effect profitability most. The hypothesis that "Banks invest their funds in government bonds by credit rationing" has tried to become come true. To search this hypothesis the balance sheets and income tables of the 69 banks in Turkey have been searched, and some rates have been found. Because banks have been founded in different year, "panel data" approach has been used in the analysis. LIMDEP program has been used to make the regression analyses in computer. In this approach ordinary least squares, group dummy variables technique and random effects models have been tried, and different results have been found using different techniques. In ordinary least squares approach banks thought as homogeny with respect to customers, volume and services. The analysis has been done without using dummy variables. But in dummy variables technique banks are thought to have different characteristics by these factors. In random effects model the probability of autocorrelation has decreased to zero. If Hausman effect is high, the regression works well. Some statistical tests have been done to show how well the regression explain the hypothesis. Log-Likelihood value shows well the explaining power of the regression. If the value is high, the explaining power is high as well. F-tests and t-tests have been done to search if B,. values are valuable for the equation. Also with chi-squared test, it is tried to found that which of the models explain the equation best. In the analysis securities portfolio, credits and income from commissions are independent factors; net profit/total assets, net profit/total equity and (interest income - interest expense)/total assets are dependent factors. It is tried to found which of the factors is more effective on profitability and income. It is seen that both three of the factors effect profitability differently. The solutions to the problem of the using bank funds for government borrowing requirement, requires more detailed and technical analysis, but in a global look these solutions can be applied: 1. The huge public banks should have the proses of privatization. In this way it would be possible to decrease the domination of government on banking system. 2. It is vital to decrease public sector borrowing requirement and discourage government from absorbing almost all sources in the financial system. The investments of banks to treasury bonds and bills must limit by criteria. Because every day the weight of these papers in bank' s assets has been increasing and banks cannot perform their basic functions. 3. Alternative ways to meet fund requirements of government and institutions must improved. Capital markets can be improved for this aim. As a result it is felt more strongly day by day that, in order to provide efficiency in financial system Turkish Banking System' s market structure must be changed immediately.Yüksek LisansM.Sc