For the time being, it looks like Turkey is not benefiting from Islamic banking products due to its own dynamics and regulations. However, looking at recent developments, it is clear that Turkey will soon be among the top players in the Islamic banking league.
We begin with a brief summary of the banking system and Islamic banking in Turkey. It is no longer new to the Turkish people. It has been 25 years since the first institution was established, and these institutions have been operating successfully to this day. However, they have never been called “Islamic banks”. They were first referred to as “special finance houses”.
This concept of calling the banks “special finance houses” has led to some misunderstandings. These institutions were confused with other companies that deal with other financial services. Besides, they had difficulty in expressing themselves in the international market. In October 2005, upon enactment of the amendment in the Turkish banking law, these institutions began to be called “participation banks”.
Even if their status is not officially “Islamic”, participation banks in Turkey are running their activities under the principles of interest-free, trade and equity related financing methods while supporting ethical investments.
Today there are 49 banks in Turkey. This includes 13 development and investment banks, 32 depository banks as well as four participation banks namely Bank Asya, Turkiye Finans, Kuveyt Turk and Al Baraka Turk. Three of these are the subsidiaries of leading Islamic banks in Kuwait, Bahrain and Saudi Arabia. On the other hand Bank Asya (Asya Katılım Bankası) is the only wholly Turkish owned participation bank which is also the leading institution, in terms of assets, deposits, loans and net profit.
Currently, Turkish banking asset volume is around US$575 billion, deposits are at US$360 billion and loans at US$290 billion, of which the participation banks make up 4.1%, 5% and 5.8% respectively. Even if the shares are not so high, participation banks recorded noticeable progress after the 2001 crisis which occurred in Turkey.
Despite the global credit crunch, participation banks also maintained growth. When comparing conventional banks’ assets growth rate with participation banks, we notice a significant gap since 2001. In 2009, conventional banks grew by 4.03% while the participation banks grew by 30.5%. The proportion is almost same for deposits as well. From the point of view of structured fi nance activities, Islamic finance has become more popular in the recent years, where participation banks are already on the scene. Besides, global banks from the US and Europe have been providing Islamic finance solutions by means of their Bahrain and Dubai based offices. In brief, Murabahah, Musharakah, and Ijarah are the most used instruments in Turkey.
Murabahah syndication is one of the instruments which is used by participation banks. Bank Asya launched its first Murabahah syndication in 2007 which was a dual tranche (one and two years) facility. In this deal, 37 banks were involved from Europe and the Middle East to provide finance to the borrower’s trade transactions.
At the time, this was the highest Murabahah syndication (US$175 million) experienced among the participation banks for the Turkish market.
Furthermore, Bank Asya launched its second Murabahah syndication in April 2009. This is again the highest Murabahah syndication deal ever made in the market with a one-year maturity, US$255 million equivalent dual currency (EUR and US$).
This facility was closed with a blowout response from the loan market which launched into syndication at US$75 million and was closed more than three times oversubscribed, on the back of strong demand from 26 local and international lenders. Those funds were raised to finance Bank Asya’s trade finance activities.
ABC Islamic Bank, Noor Islamic Bank and Standard Chartered were the main lead arrangers (MLAs). This deal was followed by Al Baraka Turk with the same MLAs but the deal was closed with US$240 million.
Turkey has been introduced to the popular instrument Sukuk recently. Kuveyt Turk has introduced this fi nancial product in Turkey with the issuance of a three-year Sukuk bond of US$100 million. Citibank and Liquidity House were the joint lead arrangers for the issuance.
In this respect, a new financial product with all its benefits is added to the Turkish economy. This new bond is considered a highly significant development for foreign investors looking to purchase interest-free products.
Consequently, if this product attracts wider foreign investments, more funds from global markets will flow into Turkey, especially most appetite is expedited from Gulf Region . This Islamic finance industry is contributing more than US$20 billion to the Turkish economy. The industry’s volume of employment has reached approximately 12,000 people. Despite the growth and the given industry’s current size, there is still more room for Islamic finance. It is still a niche market.
Considering the appetite for Islamic structures both at the international and local levels, prospects for the industry are quite bright.
Levent Sadik Kucukdaban
Islamic Finance News – Oct 13, 2010 – Volume 7, Issue 41
Source : www.islamicfinancenews.com
