Evaluation of Internal Control in Turkish Banking Sector in the View of Turkey Legislations and International Internal Control Models

Abstract

Banks are significant financial intermediaries in Turkey and World. They finance most of the trade and economic activities. Taken into consideration banks’ this function, banks have systemic importance in some countries like Turkey which has bank-based financial system. Possible problems, which could be seen in banks, would affect financial markets, macro economy and macroeconomic indicators of Turkey. For this reason, banks’ auditing, controlling and supervision are a must. Turkish Banking Sector has sustained growth from 2002. Sector’s total asset size has reached TL 2.972 billion as of 2017 June. In addition to asset size, other financial figures of the sector have grown at a significant rate. When taking into consideration this financial volume, banks’ efficient auditing is seen as a requirement.

There are some actions to have been taken by regulatory bodies in order to guarantee of banks’ auditing efficiently after banking crises seen in Turkey. First of all, Banking Regulation and Supervision Authority were established in year 2000 for Turkish Banking Sector’s efficient regulation and supervision. After banking crises seen in Turkey specifically in 2001, a new department was added to banks’ organizational structure named as Internal Control while taking effect of Banks’ Internal Audit and Risk Management System Charter by Banking Regulation and Supervision Authority in 2001. New Banking Law number 5411 came into force including articles about internal control in 2005. After that new charter named as Banks’ Internal Systems came into force by Banking Regulation and Supervision Authority in 2006 containing articles about internal control.

Although internal control concept has been known for years in abroad, it can be said that the concept is relatively new for Turkey taking into consideration that it came to Turkey in 2001. However, there is a discussion about internal control in banking in Turkey whether it is compliant with abroad and why there is difference. So, this paper was prepared in order to make a comprehensive evaluation about internal control in banking in Turkey in the view of Turkey legislations and international internal control models.

As a result of study, it was concluded that Turkey’s legislation about internal control is not compliant with international internal control models. In order to make Turkey legislation compliant with abroad, it was recommended that changes be made in Banking Law and Charter of Banks’ Internal Systems.

By this study, it was aimed at making participation to literature by handling internal control in Turkey in the view of Turkey legislations and international internal control models as comparatively.

Keywords: Banking, Internal Control, COSO, Basle Committee on Banking Supervision, Legislations, Turkey

JEL Classification: G21, G28, K29, M42