Last Thursday Istanbul Stock Exchange (İMKB) was in a strong rise. The stocks of almost four banks were traded; and the İMKB had a historic day in this sense. Sabah daily published a story on this issue on Friday with the heading 'Istanbul Banks Exchange'. The interesting side of this movement is that it was unique for Turkey. Developing countries' stock markets were mild. Developed countries' stock markets were mild as well. And on the agenda of Turkey was a constitutional amendment package which would crystallize the social polarization and which in fact seemed to be designed for this purpose. It appeared that there is no apparent reason to justify the rise in stocks market. The comments delivered in news channels therefore seemed as commentators were also surprised. To be honest, I think that this activity in banks' stocks can be a good sign. The timing of this movement makes the subject worth analyzing. Let me tell you why I think so and why I am cautiously optimistic. Those looking forward to hearing a positive comment from me; please go on reading.

In reality, stocks markets are considered to be the barometers of economic activity. They reflect the developments in the corporate sector, the economy and even in the politics. This is a general phenomenon; but this was not the case for the İMKB until recently. İMKB used to show movements upon 'highly unique reasons'. You could only observe and watch trying to figure out the meaning of the movements. At least that was all I could do. As a former employee of Capital Markets Board, I preferred to remain silent about discussions on the 'what happens if the İMKB is closed' axis. But this time I believe that the activity should be examined carefully and discussed. If my guess is correct, the İMKB will come to age for me as an information.

Let me start with the first point: the activity in the İMKB can be considered as a signal of the possibility that the 11 billion TL of credit in banks' balance sheets which was restructured in 2009 are 'fine' or at least 'not bad'. Then, there exists a favorable development considering the recovery process. Why? The reason is quite simple: as per the deregulation in Reserves Regulation introduced by the Banks Regulation and Supervision Agency (BRSA), banks restructured several times the loans of the firms who faced trouble due to the crisis. If you take a look at BRSA's 2009 December dated publication 'Outlook of the Turkish Banking Sector' you see that the amount of restructured credits is around 11.2 billion TL and that credits of 828 thousand people/firms were restructured this way. Credits that would have been classified as non-performing loans as well as the indebted were allowed to survive; and so the damage in the balance sheets of banks was limited. This is the first point to keep in mind.

Second, March is the repayment time for credits and financial statement time for banks. Troubled credits and some restructured credits should have been turned to non-performing status. But if there is no significant shift from restructured credits to non-performing credits, this is a good sign for the system as well as for economic recovery. In fact, this is the most concrete signal received so far. Therefore, the timing of the rise in the stock market is meaningful. This is the second point to state.

Third point should be as follows: evidently, it is a ground for being optimist that the March was overcome without any or with small number of problems. However, this optimism should also be 'cautious'. First, firms cannot still swim on their own. Second, there is still a group of firms that cannot access the banking sector. Third, export market does not seem to unblock soon. So the result is, the 'resistance test' geared to the banking and the corporate sector is not over yet. What the activity in the stock market signals is that March was overcome without any trouble is a reason to be happy. But there was and still is an ominous situation.

Now we have a stronger reason to be optimistic. That as of the beginning of April, there is no significant shift to non-performing loans among the restructured credits is a favorable development for the banking system as well as the stocks of banks.

So, what should we do now? It is quite clear: First, balance sheets and behaviors of banks should be monitored further. Second, BRSA should be congratulated since the Reserves Regulation works. Third, Capital Markets Board should be called for duty since it is prohibited to carry out trading upon unofficial information. If we assess it correctly, the situation does not seem to comply with the equal treatment principle. This is what we think. We believe that the İMKB now serves for a wider set of purposes.

This commentary was published in Referans daily on 30.03.2010