The development of financial risk performance of Istanbul Metropolitan Municipality (IMM) between the years 2008-2018

Abstract

The purpose of this study is to examine impact of the financial risks local governments are exposed to within the scope of financial risk management practices. Istanbul Metropolitan Municipality (IMM) was selected for this study because it is the largest local government with the highest budget. In the study, the development of financial risk performance of IMM between the years 2008-2018 was examined in the light of the risks IMM is exposed to. The main results regarding the risks faced by IMM during the period are as follows: Financial data obtained from the financial statements of IMM were used to examine the performance of listed risks & effects they have on the budget of IMM. Results of the analyses done for this study are summarized as follows: Risk of Dependence on Shares from the central budget revenue: It was observed that IMM was directly dependent on the central budget in terms of revenues, so in this period, the risk of addiction was high in terms of counterparty risk. Risk of Dependence on the Rating Grade: It was understood that restriction of not passing the country score was still valid in practice and there was a risk of dependence on IMM's rating score. Borrowing & Exchange Rate Risk: IMM had borrowing risk because a significant portion of its total borrowing consists of foreign borrowing so it was significantly affected by increase in exchange rate and it was exposed to additional debt burden, hence the existence of exchange rate risk. Interest Rate Risk: It was understood that IMM was exposed to interest rate risk arising from fluctuations in rate. It was observed that debt burden of the IMM was affected to a certain extent. Credit & Liquidity Risk: It is understood that there is a liquidity risk. The credit & liquidity risks may be valid in upcoming period. Maturity Risk: It is observed that there wasn’t maturity risk regarding maturity structures. Resource Risk: It is noteworthy that IMM has a resource risk in terms of sustaining & completing the investments undertaken. Seizure & Collaterals Risk: It was understood that IMM was exposed to this. In conclusion, various evaluations & suggestions were made for establishment of a financial risk management unit by IMM for effective management of financial risk.