Avsar Sungurlu
Published: Feb 6, 2011 23:08 Updated:Feb 6, 2011 23:11
This year will be a difficult year for Turkish banking — both conventional and participation (Islamic) banking — although the latter will continue to grow in terms of market share of the total banking sector, says Avsar Sungurlu, assistant managing director of BMD Securities, one of the top fund managers and investment advisers serving the participation banking sector in Turkey. (source)“Compared to international banks, Turkish banks had very strong financials and profits in previous years. But as the interest rates continue to come down in Turkey, it becomes harder to get deposits, so banks try to find new areas of interest. It will be still a growth period for the participation banks, and they have a major advantage on real sector businesses, but they need to improve on the investment products. This is why they are increasingly emphasizing investment products at the moment,” explained Sungurlu in an interview.
Sungurlu should know because he has been involved in all the major participation banking products launched in the last few years in Turkey which has been under-served with investment products such as sukuk, equity funds, real estate funds, exchange-traded funds (ETFs), exchange traded commodities (ETCs) and index-linked equity funds. BMD Securities in fact issued and managed the Dow Jones Islamic Market (DJIM) Turkiye Exchange-traded Fund (ETF) way back in 2006 on behalf of the then Family Finans which subsequently merged with Anadolu Finans to form the Turkiye Finans, in which Saudi Arabia’s National Commercial Bank (NCB) has a controlling stake. BMD Securities was also the index maker to the ETF which tracked the stocks on the DJIM Turkey Index.
Last year, BMD also managed the first ETF, GoldPlus ETF, launched by Kuveyt Turk Participation Bank, the Turkish subsidiary of Kuwait Finance House, one of the world’s leading Islamic banks. It also manages a number of Islamic equity funds on behalf of Turkiye Finans including the BMD Equity Investment Fund, the BMD Gold & Energy Fund and the BMD Construction Fund.
BMD Securities was also involved in the launch last month by the Istanbul Stock Exchange (ISE) of their debut equity indexes which comply with non-interest based Islamic investment principles. BMD Securities is the consultant to the ISE on the establishment and operation of the ISE Participation Index KATLM.
Turkey with a population nearing 70 million is an untapped market for participation investment funds especially equities, exchange-traded funds (ETFs), exchange traded commodities (ETCs) and index-linked equity funds. These funds of course are not only aimed at Muslim investors but also at those interested in alternative ethical and socially-responsible investment products.
The ISE Participation Index KATLM launched on Jan. 6, 2011, is merely the beginning of an initiative to promote ethical funds as a niche offering on both stock exchanges. Any euphoria that these indices will open the floodgates to a spate of offerings of Islamic mutual funds, unit trusts, ETFs and ETCs should be dispelled immediately because Islamic asset management has been slow to take off globally compared with say sukuk (Islamic securities) and real estate financing. The global Islamic asset management business ranges between $30 billion to $50 billion, which is a drop in the ocean compared with the multi-trillion dollar conventional fund business.
In the past Turkish participation banks were constrained as to the types of business lines they could get involved in compared with their conventional banking counterparts. Following the introduction of the Banking Act 2007, the country’s four participation (Islamic) banks — Albaraka Turk, Kuveyt Turk, Turkiye Finans and Asya Finans Participation Banks — were brought under the same provisions of the above act, which meant that the regulatory regime was exactly the same as for the conventional banks.
According to Sungurlu, the Kuveyt Turk GoldPlus ETF is a major step by participation banks in the Islamic investment space.
“It is the first investment fund of participation banks in Turkey. The fund is somewhat slow on the uptake, currently size of the ETF is lower than $10 million. This is mainly due to the lack of knowledge and market awareness about investment funds and ETFs in the local market in general. There are also a wide range of gold products of the issuer, and the ETF is not promoted selectively amongst them. But this year we expect demand from a number of pension funds and foreign networks of the issuer,” he added.
Indeed, the Turkiye Finans ETF on the DJIM Turkey Shariah Index was slow to start off. At that time DJIM Turkey was the first of its kind in the world and naturally a very new concept for Turkish investors. BMD Securities notes that currently there is more interest in such products particularly on institutional side as the institutional investors gain more ground in the market and seek alternative investment instruments.
Physical gold is a better underlying asset for such an ETF especially given the role of gold in the culture in the Middle region, including Turkey. In fact, both Turkey and the countries in the region have a strong demand for gold culturally and also the rally of gold in the past few years has attracted a lot of attention to gold as an investment vehicle. People, explained Sungurlu, “usually preferred to buy and keep the gold physically in the past, but we observe that as the banking system reaches a wider client base, gold investors increasingly start to keep their gold in banks and invest in gold accounts. Accordingly we structured the fund with physical gold in its portfolio. This is also a requirement of the compliance of the fund.”
BMD, as asset manager, in fact calculates and broadcasts the Index for the fund through local and international data providers. It is basically the London spot gold price in US dollar/ounce converted to Turkish Liras/gr.
Kuwait Finance House General Manager Mohammed Al-Omar, who is also chairman of Kuveyt Turk Participation Bank, has stressed that the Group would like to replicate the GoldPlus ETF to other markets in the region and beyond. Sungurly believes that the GoldPlus ETF is exportable. Since it is a standard equity trading in Istanbul Stock Exchange, currently it is possible to trade it anywhere in the world through international brokers. It is also an option to replicate it in other markets in local currency or in US dollars.
Instead of investing in gold derivatives, the fund is investing in physical gold with its whole portfolio, not partial, not leveraged. Thus a GoldPlus investor knows that there is exactly physical gold corresponding to his/her share in custody. In this way, according to BMD Securities, the markets will gain gold investors and in a secure investment environment.
Both the Istanbul Stock Exchange and the Capital Markets Board of Turkey have been very proactive in facilitating alternative products in the ethical and participation finance space. According to Sungurlu, both support new products including the alternatives and participation finance products.
“We recently launched a new 'Participation Index', that is a local compliant index, in cooperation with the participation banks and Istanbul Stock Exchange. I am positive that new products will follow. There were lots of compliant indices based on the Turkish market but there were no local standards. Based on our experience in the market, we observed that it is a necessity to establish local compliance standards and publish them. This will also help to generate new investment products based on these standards, which are parallel to international applications. The index has a rule book approved by the advisory board, formed of representatives from all participation banks. The rules are very similar to the Bahrain-based AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) Directives. Both rules and their application are monitored and approved by the board,” he added.
BMD Securities believes that the Participation Index will increase the potential for such funds and products. It is working on the launch of another Islamic ETF and a number of other products this year. In the past there were a few investment fund, but they could not get an industry wise acceptance. Not just for the compliance side, but also because of a lack of industry standards. “I think instruments based on Participation Index will get that attention, because it does have this industry wide acceptance; it is a standard established by all participants,” he explained.
Source : http://arabnews.com/economy/islamicfinance/article252660.ece - Feb 06, 2011
Sungurlu should know because he has been involved in all the major participation banking products launched in the last few years in Turkey which has been under-served with investment products such as sukuk, equity funds, real estate funds, exchange-traded funds (ETFs), exchange traded commodities (ETCs) and index-linked equity funds. BMD Securities in fact issued and managed the Dow Jones Islamic Market (DJIM) Turkiye Exchange-traded Fund (ETF) way back in 2006 on behalf of the then Family Finans which subsequently merged with Anadolu Finans to form the Turkiye Finans, in which Saudi Arabia’s National Commercial Bank (NCB) has a controlling stake. BMD Securities was also the index maker to the ETF which tracked the stocks on the DJIM Turkey Index.
Last year, BMD also managed the first ETF, GoldPlus ETF, launched by Kuveyt Turk Participation Bank, the Turkish subsidiary of Kuwait Finance House, one of the world’s leading Islamic banks. It also manages a number of Islamic equity funds on behalf of Turkiye Finans including the BMD Equity Investment Fund, the BMD Gold & Energy Fund and the BMD Construction Fund.
BMD Securities was also involved in the launch last month by the Istanbul Stock Exchange (ISE) of their debut equity indexes which comply with non-interest based Islamic investment principles. BMD Securities is the consultant to the ISE on the establishment and operation of the ISE Participation Index KATLM.
Turkey with a population nearing 70 million is an untapped market for participation investment funds especially equities, exchange-traded funds (ETFs), exchange traded commodities (ETCs) and index-linked equity funds. These funds of course are not only aimed at Muslim investors but also at those interested in alternative ethical and socially-responsible investment products.
The ISE Participation Index KATLM launched on Jan. 6, 2011, is merely the beginning of an initiative to promote ethical funds as a niche offering on both stock exchanges. Any euphoria that these indices will open the floodgates to a spate of offerings of Islamic mutual funds, unit trusts, ETFs and ETCs should be dispelled immediately because Islamic asset management has been slow to take off globally compared with say sukuk (Islamic securities) and real estate financing. The global Islamic asset management business ranges between $30 billion to $50 billion, which is a drop in the ocean compared with the multi-trillion dollar conventional fund business.
In the past Turkish participation banks were constrained as to the types of business lines they could get involved in compared with their conventional banking counterparts. Following the introduction of the Banking Act 2007, the country’s four participation (Islamic) banks — Albaraka Turk, Kuveyt Turk, Turkiye Finans and Asya Finans Participation Banks — were brought under the same provisions of the above act, which meant that the regulatory regime was exactly the same as for the conventional banks.
According to Sungurlu, the Kuveyt Turk GoldPlus ETF is a major step by participation banks in the Islamic investment space.
“It is the first investment fund of participation banks in Turkey. The fund is somewhat slow on the uptake, currently size of the ETF is lower than $10 million. This is mainly due to the lack of knowledge and market awareness about investment funds and ETFs in the local market in general. There are also a wide range of gold products of the issuer, and the ETF is not promoted selectively amongst them. But this year we expect demand from a number of pension funds and foreign networks of the issuer,” he added.
Indeed, the Turkiye Finans ETF on the DJIM Turkey Shariah Index was slow to start off. At that time DJIM Turkey was the first of its kind in the world and naturally a very new concept for Turkish investors. BMD Securities notes that currently there is more interest in such products particularly on institutional side as the institutional investors gain more ground in the market and seek alternative investment instruments.
Physical gold is a better underlying asset for such an ETF especially given the role of gold in the culture in the Middle region, including Turkey. In fact, both Turkey and the countries in the region have a strong demand for gold culturally and also the rally of gold in the past few years has attracted a lot of attention to gold as an investment vehicle. People, explained Sungurlu, “usually preferred to buy and keep the gold physically in the past, but we observe that as the banking system reaches a wider client base, gold investors increasingly start to keep their gold in banks and invest in gold accounts. Accordingly we structured the fund with physical gold in its portfolio. This is also a requirement of the compliance of the fund.”
BMD, as asset manager, in fact calculates and broadcasts the Index for the fund through local and international data providers. It is basically the London spot gold price in US dollar/ounce converted to Turkish Liras/gr.
Kuwait Finance House General Manager Mohammed Al-Omar, who is also chairman of Kuveyt Turk Participation Bank, has stressed that the Group would like to replicate the GoldPlus ETF to other markets in the region and beyond. Sungurly believes that the GoldPlus ETF is exportable. Since it is a standard equity trading in Istanbul Stock Exchange, currently it is possible to trade it anywhere in the world through international brokers. It is also an option to replicate it in other markets in local currency or in US dollars.
Instead of investing in gold derivatives, the fund is investing in physical gold with its whole portfolio, not partial, not leveraged. Thus a GoldPlus investor knows that there is exactly physical gold corresponding to his/her share in custody. In this way, according to BMD Securities, the markets will gain gold investors and in a secure investment environment.
Both the Istanbul Stock Exchange and the Capital Markets Board of Turkey have been very proactive in facilitating alternative products in the ethical and participation finance space. According to Sungurlu, both support new products including the alternatives and participation finance products.
“We recently launched a new 'Participation Index', that is a local compliant index, in cooperation with the participation banks and Istanbul Stock Exchange. I am positive that new products will follow. There were lots of compliant indices based on the Turkish market but there were no local standards. Based on our experience in the market, we observed that it is a necessity to establish local compliance standards and publish them. This will also help to generate new investment products based on these standards, which are parallel to international applications. The index has a rule book approved by the advisory board, formed of representatives from all participation banks. The rules are very similar to the Bahrain-based AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) Directives. Both rules and their application are monitored and approved by the board,” he added.
BMD Securities believes that the Participation Index will increase the potential for such funds and products. It is working on the launch of another Islamic ETF and a number of other products this year. In the past there were a few investment fund, but they could not get an industry wise acceptance. Not just for the compliance side, but also because of a lack of industry standards. “I think instruments based on Participation Index will get that attention, because it does have this industry wide acceptance; it is a standard established by all participants,” he explained.
Source : http://arabnews.com/economy/islamicfinance/article252660.ece - Feb 06, 2011
