Turkey has bounced back from a sharp economic contraction to become one of the region's best performers. Its prospects are brighter than ever.
Turkey's constitutional referendum last month gave a boost to prime minister Recep Tayyip Erdogan's ruling AK Party, as voters approved 26 amendments to the country's 1982 Constitution. The poll was an important test for the government ahead of next year's general election.
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Turkey's constitutional referendum last month gave a boost to prime minister Recep Tayyip Erdogan's ruling AK Party, as voters approved 26 amendments to the country's 1982 Constitution. The poll was an important test for the government ahead of next year's general election.
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Islamic Finance Grows
Turkey's population is 95% Muslim, and the Islamic finance industry in the country, though quite small, is growing fast. The banks now operating under the name of "participation banks" had the status of "special finance houses" until 2005. The special finance houses offered interest-free banking, or what is known across the world as Islamic banking. However, they were not completely subject to the banking law and encountered problems of representation and confidence.
Following amendments to the banking law in 2005, participation banks were fully integrated into the system. The fact that they now have a 5% share of the banking market may seem modest, but it is more than double the 2.44% of the market it represented in 2005, says Yunus Nacar, CEO of Turkiye Finans. "I expect the share that participation banks have in the assets of the banking system will rise to about 10% in a few years, owing to the current momentum of growth," Nacar says.
Turkiye Finans, 60% of which is owned by Saudi Arabia's largest bank, National Commercial Bank, offers its customers all of the products available at commercial banks, as long as no interest is charged. However, the use of sukuk, or Islamic bonds, is a new issue on the agenda in Turkey, Nacar says. "Such assets are created by leasing transactions, and these assets must comply with the participation banking principles," he says. "The participation banks presently carry very small amounts of these assets on their balance sheets."
The expansion and spread of sukuk in the Turkish market also requires new tax regulations, Nacar says. As it stands now, companies issuing Islamic debt are taxed twice: once when they lease assets backing the debt, and again when the assets are sold. "The government introduced income-indexed notes in 2008, thereby attracting global investors' interest through interest-free products," Nacar says. "Considering that the sukuk product will have the same result, we can say that there will be developments exciting to investors in international markets."
In August, Kuveyt Türk, a participation bank in which Kuwait Finance House holds a 62% stake, issued $100 million of three-year Islamic notes, in the first sukuk sale ever by a company in Turkey. While the issue was well received, it was only available in the international market and not in Turkey. Kuveyt Türk says more regulatory changes are needed to encourage the development of the sukuk market. Turkish finance minister Mehmet Simsek said earlier this year that Turkey wants to expand its shariah-compliant financial services to attract more investment from the Arab Gulf. The Kuveyt Türk sukuk could pave the way for Turkey to issue a sovereign sukuk next year, which would give the sector a big lift, bankers say.
Source (excerpt): http://community.nasdaq.com/news/2010-10/country-report-turkey.aspx?storyid=39830#ixzz125zVeEKg- Oct 10, 2010
Turkey's population is 95% Muslim, and the Islamic finance industry in the country, though quite small, is growing fast. The banks now operating under the name of "participation banks" had the status of "special finance houses" until 2005. The special finance houses offered interest-free banking, or what is known across the world as Islamic banking. However, they were not completely subject to the banking law and encountered problems of representation and confidence.
Following amendments to the banking law in 2005, participation banks were fully integrated into the system. The fact that they now have a 5% share of the banking market may seem modest, but it is more than double the 2.44% of the market it represented in 2005, says Yunus Nacar, CEO of Turkiye Finans. "I expect the share that participation banks have in the assets of the banking system will rise to about 10% in a few years, owing to the current momentum of growth," Nacar says.
Turkiye Finans, 60% of which is owned by Saudi Arabia's largest bank, National Commercial Bank, offers its customers all of the products available at commercial banks, as long as no interest is charged. However, the use of sukuk, or Islamic bonds, is a new issue on the agenda in Turkey, Nacar says. "Such assets are created by leasing transactions, and these assets must comply with the participation banking principles," he says. "The participation banks presently carry very small amounts of these assets on their balance sheets."
The expansion and spread of sukuk in the Turkish market also requires new tax regulations, Nacar says. As it stands now, companies issuing Islamic debt are taxed twice: once when they lease assets backing the debt, and again when the assets are sold. "The government introduced income-indexed notes in 2008, thereby attracting global investors' interest through interest-free products," Nacar says. "Considering that the sukuk product will have the same result, we can say that there will be developments exciting to investors in international markets."
In August, Kuveyt Türk, a participation bank in which Kuwait Finance House holds a 62% stake, issued $100 million of three-year Islamic notes, in the first sukuk sale ever by a company in Turkey. While the issue was well received, it was only available in the international market and not in Turkey. Kuveyt Türk says more regulatory changes are needed to encourage the development of the sukuk market. Turkish finance minister Mehmet Simsek said earlier this year that Turkey wants to expand its shariah-compliant financial services to attract more investment from the Arab Gulf. The Kuveyt Türk sukuk could pave the way for Turkey to issue a sovereign sukuk next year, which would give the sector a big lift, bankers say.
Source (excerpt): http://community.nasdaq.com/news/2010-10/country-report-turkey.aspx?storyid=39830#ixzz125zVeEKg- Oct 10, 2010
