THE ROLE OF LOW INTEREST RATES ON PREFERENCE OF SAVİNGS IN TURKEY ZELİHA SAYAR

SAVİNG According to the Neo-classic theory S(i,y) Saving relationship with a history of the country, institutions, the habit of savings, culture, the structure of the financial system ( market-based or banking- based ). If interest rate does not determine in the markets, how can it affect the savings?

THE HİSTORY OF BANKING IN TURKEY In the Ottoman empire the dominance of foreıgn banks and minorities At the end of 19th century the establishment of Ziraatbank and local commercial bank After Republic of Turkey national banks By 1930s state banks After the second world war private banks Until 1980s interest rates determined by the central bank.

Table 1. Deposits of Saving Percent of GDP Between 1924 and 1933   Year Deposits of saving/ GDP 1924 % 0.5 1925 1926 % 0.6 1927 % 1.2 1928 % 1.4 1929 %1.3 1930 %2.0 1931 % 2.6 1932 %2.5 1933 %6.1 Table 1. Deposits of Saving Percent of GDP Between 1924 and 1933

THE ROLE OF CENTRAL BANK In 1927, the interest rate of deposits was 5,25, and the interest rate on deposits was 7,75, in 1932 3,75 and 6,35. It shows that the interest rate of deposits reduced after the establishment of the central bank. Total Deposits/ GDP 1924-1931 8,8 1932-1943 12,5 1944-1960 14,3 1960-1970 18,2 1971-1980 20,2

THE CHANGE OF BANKS’ AND BRANCHES’ NUMBERS Between 1924 and 1931 the number of banks rose from 35 to 62, and the number of branches declined 439 to 424. In this period, the establishment of banks was easy due to not any bank law, and especially an increase in the local numbers.   Between 1932 and 1943 the numbers of banks declined from 60 to 42 and the number of branches 483 to 404. During this period the adverse effect of great depression, many local banks closed. New state banks were established. After the second World War, the development of private banks, and the numbers of the branches increased gradually and reached to 1759 in 1960. Between 1960 and 1980 while the numbers of banks fell the number of branches contınued to rise.

Interest Rates of Deposits % Real interest Rates on Deposits Year   Interest Rates of Deposits % Real interest Rates on Deposits Interest Rates of Time Deposits Real interest rates on time deposits 1933 4.5 1938 9.8 1951 2.5 - 3.76 5.0 -1.4 1955 -4.3 -1.96 1956 3.5 -1.15 -1 1960 3.0 -0.2 6.5 1.1 1961 0.09 6.0 1.03 1964 1.8 4.7 1969 -3.9 -1.1 1970 -3.5 9.0 2.16 1973 -15 7.0 -11.2 1974 -20.7 -16 1978 -32.5 12.0 -26.6 1979 -37.1 20.0 -26.8 Table 2: Interest rates on deposits and time deposits between 1933 and 1979(%)

TABLE 3 Total Deposits Ratio Between1963-1980 Year   Total deposits/GDP Real interest rates 1963 %16.8 % 1.6 1964 %16.5 % 4.7 1965 %17.2 % -1.9 1966 %19.2 % 1.14 1967 %19.9 % - 1.48 1968 %24.0 % 2.71 1969 %25.6 % - 1.1 1970 %25.8 % 2.16 1971 %26.8 % -5.95 1972 %29.4 % -7.6 1973 %27.3 % -11.2 1974 % -16 1975 %27.8 % -0.9 1976 %28.9 % -5.7 1977 %28.8 % -12.16 1978 %25.1 % -26.6 1979 %22.0 % -26.8 1980 %18.1 TABLE 3 Total Deposits Ratio Between1963-1980

TABLE 4 Total Quantity of Deposits

Graph 1: The Numbers of Banks and Branches

THE DEPOSİTS,REAL INTEREST RATE AND THE BRANCHİNG

CONCLUSION After 1950 savings rates rose despite negative real interest rate. It was an inverse relationship between interest rates and savings. Because the theory of price (price is interest rate for this model) did not work and quantity (quantity or income is defined deposits for banks) was determined in the banking system. . In the history of Turkish economy because of supporting cheap credit to the private and public sector, interest rates were kept low many years and the banking system negatively impacted it. Despite negative real interest rates, the total amount of deposits in national banks increased.

CONCLUSION To achieve this result, rather than other financial institutions, e.g. bonds, stock. Banks had campaıgns, and notably branch banking was implemented. In conclusion, the branching reduced the negative effect of low interest and savings increased. It was this branching policy, not high-interest rates, that developed saving habit within the Republic of Turkey.

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