Definition and Types of Banks

1. Definition and Types of Banks

2. Bank is defined as the institutions established with a name of bank and the branches in Turkey of banks established abroad in article 2 of Banking Code. • In doctrine banks is defined as: “A bank is a financial institutionand a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets.

3. There are various kinds of banks which operate in our country to meet the financial requirements of different categories of people. On the basis of functions, banks may be divided into following categories.

4. Types of Banks • I. Banks According to Subject • A. Central Bank (Bank of Issue) • B. Banks without Public Authorities • 1. Deposit Banks • 2. Banks That Can Not Accept Deposit • a. Participation Bank • b. Development and Investment Bank II. Banks According To Nationality III. Banks According To Operation Place A. Banking Operations in Free Zones B. Offshore Banking IV. Private and Public Banks

5. I. Banks according to subject A. Banks with public authorities (Central Banks) A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. The Central BankoftheRepublic of Turkey is the central bank of Turkey.

6. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country. No other bank than Central Bank can issue currency.

7. B. Banks without public authorities • Deposit banks Deposit banks accept deposits and lend this money to individuals and companies that need it. For this reason, they work with thousands of savers and customers.

8. In Banking Code art. 3 deposit banks are defined as: • “The institutions operating primarily for the purpose of accepting deposit and granting loan in their own names and for their own accounts as per the provisions of this Law and the branches in Turkey of such institutions established abroad”

9. 2. Banks that can not accept deposit • a. Participation bank: These banks work without interest. The origin of these banks is “private finance institutions”. These banks are defined in art. 3 of Banking Code as “The institutions operating primarily for the purposes of collecting fund through special current accounts and participation accounts and granting loan pursuant to this Law and the branches in Turkey of such institutions established abroad”

10. Special current account The accounts opened at participation banks and that consists of funds that can be partially or fully withdrawn upon request any time and for which no charge is paid to the owner of the account in return.

11. Participation account: Accounts constituted by funds collected by participation banks that yield the result of participation in the loss or profit to arise from their use by these institutions, that do not require the payment of a pre-determined return to their owners and that do not guarantee the payment of the principal sum.

12. b. Development and investment bank: • These banks are defined in art. 3 of Banking Code as “The institutions operating primarily for the purposes of granting loan and/or to fulfill the duties assigned thereto by their special laws, other than accepting deposit or participation fund pursuant to this Law, and the branches in Turkey ofsuch institutions established abroad”

13. These banks are mostly public sector banks. They finance the public bodies and local administrations in order to provide the development of the country. Such as İller bankası, Türkiye İhracat Kredi Bankası (Exim Bank), Türkiye Kalkınma Bankası A.Ş. • They can not collect deposit. They sell their own funds or the funds that they have from local or foreign market or the funds that they have from national or international credit and finance institutions.

14. For this reason, contrary to deposit banks, these banks can use the funds in long term financial techniques. They work with few branches and work mostly in capital market.

15. II. Banks According to Nationality Banks according to this criteria are divided into two groups: Turkish Banks and Turkish brances of foreign banks (foreign banks) But today this differentiation had been minified. There is only one difference between these banks which is foreign banks can buy C class share certificate and the number of these is limited with 15.000.

16. III. Banks According to Operation Place A. Banking operations in Free Zones A free zone is an area of a country where some normal trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments. Banks work in free zones benefit from these exemptions.

17. B. Offshore Banking • These banks are defined in art. 3 of Banking Code as “Banking activities performed outside the borders of a given country or outside the coverage of the economic and financial legislation applied country-wide or whereby the deposits and funds from the residents of that country where it is established cannot be accepted.”

18. An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages to depositers. These advantages typically include: • greater privacy • low or no taxation • easy access to deposits (at least in terms of regulation) • protection against local political or financial instability

19. Advantages for banks: • The cost of fund management and other financial advantages are not subject to any limit or audit of any authority (such as CMB). • Income of banks is not subject to tax and exchange control. Because the countries which allow offshore banking does not collect corporation tax.

20. Disadvantages One of the major disadvantages due to offshore banking is that the local economy of the resident depositor may affect as he is blocking the money to other economy rather than to his own country. Offshore bank accounts are less financially secure.

21. IV. Private and Public Banks Private and public bank discriminition is unique to Turkish application. Share holders of private banks are from private sector. Whereas public banks are established by state capital such as Ziraat Bankası, Halkbank.

22. Nationality of shareholders is not important. Foreigners can establish a bank in Turkey, in this case it is a Turkish bank.