Published: Mar 28, 2011 00:07
Kuveyt Turk Participation Bank (KTPB), a subsidiary of the Kuwait Finance House (KFH), one of the pioneers of global Islamic finance, is a leading Turkish participation (Islamic bank). While Turkish participation banks in general are deemed to be conservative and cautious, KTPB has set the tone by venturing abroad into Germany, Dubai, Bahrain and Kazakhstan and by pioneering new products based on physical gold and exporting them to markets in Malaysia and elsewhere through the global network of KFH. These include gold-backed exchange traded funds (ETFs), gold-backed banking accounts and sukuk. Ufuk Uyan, CEO of Kuveyt Turk Participation Bank, a doyen of Turkish Islamic banking, has been at the forefront of the expansion of KTPB, taking it to the top 10 tier of Turkish banks. Here Ufuk Uyan discusses with Arab News the state of the participation banking sector in Turkey, the performance of KTPB in 2010 and the prospects and challenges for the industry in 2011 and beyond. (full story)
What sort of year has 2010 been for KTPB?
The year 2010 was a perfect year for Kuveyt Turk in particular and in general for the participation banks in Turkey. The growth of the participation banking sector was double that of the conventional sector. KTPB has now become one of the top 10 banks in Turkey and in 2010 our balance sheet growth was about 50 percent compared with 2009. Last year we opened 25 branches and our total number of branches is 156. It is important for us to be near to our clients. For a medium-sized bank it is normal to have over 200 branches. We plan to reach this by next year. By the end of this year we plan to have 180 local branches. We also have a branch in Bahrain since 2002; in Germany; a representative office in Kazakhstan; and a full subsidiary in Dubai at the DIFC. We also have plans to go to Northern Iraq and open a branch in Erbil; and some other locations which have not been finalized as yet.
Can you clarify your license status in Germany?
We have a partial banking license in Germany, a financial services GMBH license which allows us to gather deposits in Germany but for accounts opened at our bank in Turkey. In our recent discussions with BaFin (the German Federal Financial Supervisory Authority), they would like us to convert the branch into a full-fledged subsidiary. And hopefully we would be able to upgrade the license into a full banking license which would allow us to take deposits, extend credits and so on. We have already got out board approval to convert our branch into a subsidiary and we have put in the application with BaFin, which initially requested us to do this. We also plan to promote our Dubai subsidiary because there are a lot of trade flows going through Dubai nowadays. The Dutch authorities are creating big problems for Turkish conventional banks. They don't want them to extend credits and are putting various restrictions on their business activities. Several of the Turkish banks have decided to move to Dubai DIFC. Europe wise it is not easy for Turkish banks, although Turkey has long-standing trade ties with Europe.
What has been your performance in 2010?
The year 2010 is interesting with respect to the financial results. We expect the net profit to be about $100 million and total assets over $5 billion. We also launched many new products. For instance, we became very active in gold accounts. We are collecting gold deposits - current account gold deposits and term accounts gold deposits. We are distributing profit to these gold accounts.
Explain to me how this works?
Any client who wishes to invest in gold come to our branch and deposit Turkish liras or US dollars and convert them into dollar-equivalent gram of gold. The client can thus at anytime redeem the deposit either in the form of physical gold or in dollars equivalent to the price of gold at the time. This is for the current account. For the term account, we swap the gold into dollars and invest the dollars and the return is distributed to gold account holders in the same format. Gold investments are culturally acceptable in Turkey. Before and during the years of the financial crisis many Turks preferred to keep their gold at home under the mattress. These accounts are also totally Shariah-compliant and our Malaysian sister bank, KFH Malaysia has also opened similar accounts for its clients. KTPB is a member of the Istanbul Gold Exchange so we keep the physical gold at the exchange. We are one of the top three banks active in the exchange.
To attract institutional gold investors, we also launched the GoldPlus exchange traded fund (ETF) which is listed on the Istanbul Stock Exchange and has been traded since August 2010. Although the size is small we expect it to increase. The pension funds and the insurance companies have to keep some of their investments in the form of gold, so that they can invest directly without losing on the buy-and-sell exchanges differences.
We have also started to give gold coins from our ATMs. These coins are certified by the Istanbul Gold Exchange and the refineries. This is unique for any bank. If you go to one of our ATMs and want to buy gold coins you can just pay through your debit card or cash and you will get the gold coin/s.
We also issued the first sukuk in Turkey in 2010 - a 3-year $100 million issuance sold to GCC, Turkish and European investors. It was 40 per cent oversubscribed. Our intention is to issue a 5-Year Sukuk for a minimum of $200 million in early 2012.
With all these activities, are you planning to increase your capital further?
Last year we increased our capital by $200 million. Our equity is around $800 million. Our capital adequacy is about 17 percent so there is ample room to grow further.
How are you using the proceeds from the sukuk?
We are using to for balance sheet purposes to finance trade and projects. We have entered the project finance sector especially the energy sector, which is undergoing privatization. We have clients who are bidding for these projects in electricity generation and natural gas supplies. They need financing. In order to reduce the mismatch, this is a very important step for us. We are building the portfolio.
How will Basel III provisions impact on the participation banks?
It will impact on the sector by increasing the capital requirements as with conventional banks. But we do not have any derivative type products as in the conventional sector. However, we are significantly active in the mortgage market and it is not clear which ratios will be applied to mortgage loans under Basel III. Of the total Islamic mortgage market in Turkey we have a market share of 30 percent. Some 25 percent of our consumer financing is mortgages.
How do you see the prospects for participation banking in 2011 and beyond and what can the government do to help the sector?
In terms of long-term borrowing, conventional banks can borrow 3-years or 5-years through bond issues and the taxation side has been in place for many years. We need similar treatment for the participation banks. There is only one route which is Sukuk issuance. Recently Parliament passed the tax neutrality measures for Ijara Sukuk, but we need the same level playing field for other sukuk structures.
There also no instruments to accommodate the central bank funding requirements of participation banks. So we need the central bank to issue Sukuk, participation government notes and securities.
This year will be a volatile year for the Turkish banking sector as a whole because of the political environment because of the elections which are due in January 2012.
Source : http://arabnews.com/economy/islamicfinance/article332265.ece - March 28, 2011
The year 2010 was a perfect year for Kuveyt Turk in particular and in general for the participation banks in Turkey. The growth of the participation banking sector was double that of the conventional sector. KTPB has now become one of the top 10 banks in Turkey and in 2010 our balance sheet growth was about 50 percent compared with 2009. Last year we opened 25 branches and our total number of branches is 156. It is important for us to be near to our clients. For a medium-sized bank it is normal to have over 200 branches. We plan to reach this by next year. By the end of this year we plan to have 180 local branches. We also have a branch in Bahrain since 2002; in Germany; a representative office in Kazakhstan; and a full subsidiary in Dubai at the DIFC. We also have plans to go to Northern Iraq and open a branch in Erbil; and some other locations which have not been finalized as yet.
Can you clarify your license status in Germany?
We have a partial banking license in Germany, a financial services GMBH license which allows us to gather deposits in Germany but for accounts opened at our bank in Turkey. In our recent discussions with BaFin (the German Federal Financial Supervisory Authority), they would like us to convert the branch into a full-fledged subsidiary. And hopefully we would be able to upgrade the license into a full banking license which would allow us to take deposits, extend credits and so on. We have already got out board approval to convert our branch into a subsidiary and we have put in the application with BaFin, which initially requested us to do this. We also plan to promote our Dubai subsidiary because there are a lot of trade flows going through Dubai nowadays. The Dutch authorities are creating big problems for Turkish conventional banks. They don't want them to extend credits and are putting various restrictions on their business activities. Several of the Turkish banks have decided to move to Dubai DIFC. Europe wise it is not easy for Turkish banks, although Turkey has long-standing trade ties with Europe.
What has been your performance in 2010?
The year 2010 is interesting with respect to the financial results. We expect the net profit to be about $100 million and total assets over $5 billion. We also launched many new products. For instance, we became very active in gold accounts. We are collecting gold deposits - current account gold deposits and term accounts gold deposits. We are distributing profit to these gold accounts.
Explain to me how this works?
Any client who wishes to invest in gold come to our branch and deposit Turkish liras or US dollars and convert them into dollar-equivalent gram of gold. The client can thus at anytime redeem the deposit either in the form of physical gold or in dollars equivalent to the price of gold at the time. This is for the current account. For the term account, we swap the gold into dollars and invest the dollars and the return is distributed to gold account holders in the same format. Gold investments are culturally acceptable in Turkey. Before and during the years of the financial crisis many Turks preferred to keep their gold at home under the mattress. These accounts are also totally Shariah-compliant and our Malaysian sister bank, KFH Malaysia has also opened similar accounts for its clients. KTPB is a member of the Istanbul Gold Exchange so we keep the physical gold at the exchange. We are one of the top three banks active in the exchange.
To attract institutional gold investors, we also launched the GoldPlus exchange traded fund (ETF) which is listed on the Istanbul Stock Exchange and has been traded since August 2010. Although the size is small we expect it to increase. The pension funds and the insurance companies have to keep some of their investments in the form of gold, so that they can invest directly without losing on the buy-and-sell exchanges differences.
We have also started to give gold coins from our ATMs. These coins are certified by the Istanbul Gold Exchange and the refineries. This is unique for any bank. If you go to one of our ATMs and want to buy gold coins you can just pay through your debit card or cash and you will get the gold coin/s.
We also issued the first sukuk in Turkey in 2010 - a 3-year $100 million issuance sold to GCC, Turkish and European investors. It was 40 per cent oversubscribed. Our intention is to issue a 5-Year Sukuk for a minimum of $200 million in early 2012.
With all these activities, are you planning to increase your capital further?
Last year we increased our capital by $200 million. Our equity is around $800 million. Our capital adequacy is about 17 percent so there is ample room to grow further.
How are you using the proceeds from the sukuk?
We are using to for balance sheet purposes to finance trade and projects. We have entered the project finance sector especially the energy sector, which is undergoing privatization. We have clients who are bidding for these projects in electricity generation and natural gas supplies. They need financing. In order to reduce the mismatch, this is a very important step for us. We are building the portfolio.
How will Basel III provisions impact on the participation banks?
It will impact on the sector by increasing the capital requirements as with conventional banks. But we do not have any derivative type products as in the conventional sector. However, we are significantly active in the mortgage market and it is not clear which ratios will be applied to mortgage loans under Basel III. Of the total Islamic mortgage market in Turkey we have a market share of 30 percent. Some 25 percent of our consumer financing is mortgages.
How do you see the prospects for participation banking in 2011 and beyond and what can the government do to help the sector?
In terms of long-term borrowing, conventional banks can borrow 3-years or 5-years through bond issues and the taxation side has been in place for many years. We need similar treatment for the participation banks. There is only one route which is Sukuk issuance. Recently Parliament passed the tax neutrality measures for Ijara Sukuk, but we need the same level playing field for other sukuk structures.
There also no instruments to accommodate the central bank funding requirements of participation banks. So we need the central bank to issue Sukuk, participation government notes and securities.
This year will be a volatile year for the Turkish banking sector as a whole because of the political environment because of the elections which are due in January 2012.
Source : http://arabnews.com/economy/islamicfinance/article332265.ece - March 28, 2011
