theislamicglobe.com - In quiet corners in the established Islamic finance hubs of the GCC and Malaysia, jittery Islamic bankers whisper tales of a great power rising in the west.
The fear is not the old crusaders and imperialists of Europe and America, but a modern, democratic, secular nation at the bridge between Europe and Asia: Turkey.
Although the development of c, known in Turkey as participation banks, is no secret, there is a definitive pique in interest from the established powers in Islamic banking in doing business with and doing business in Turkey. (source)
But it’s not just one-way traffic; Turkey Inc. is seeking to flex its muscles and after years of rebuffs and rebuttals from the (now beleaguered) EC to the north, has turned south and east to its traditional pre-Atatürk area of influence, the Arab world. This outreach program, combined with a charm offensive carried out by Turkey’s moderate political Islamist president, Abdullah Gül, to court the rest of the Islamic world, has seen Turkey become an economic power-broker in the ranks of the developing world nations. So much so that it has made its way into Goldman Sach’s Jim O’Neill’s latest version of BRICs, MIST – Mexico, Indonesia, South Korea and Turkey – along with Indonesia, the first Muslim nation to get into that tier just below the economic Premier League.
O’Neill told the Financial Times recently: “Some emerging markets should be traded as emerging markets – they are illiquid and small, and investors should remember that. But any economy from the emerging markets world that is already 1% of global GDP or more, and has the potential for that to rise, has the ability to be taken seriously.”
In the vanguard of Turkey’s economic assault on world markets is Islamic banking, and with Gül’s Islamic-leaning Justice and Development party launching the country’s first Islamic investment fund in February, the country belatedly entered Islamic finance. Despite its late entry, the participation banks backed by the government are quickly catching up.
At the moment there are four participation banks in Turkey: Bank Asya, Kuveyt Türk, Albaraka Türk and Türkiye Finans. Two of these are part-owned by Kuwaiti institutions [Kuveyt Türk by Kuwait Finance House, Albaraka Türk by Albaraka Banking Group] and one, Türkiye Finans, has National Commercial Bank of Saudi Arabia as majority shareholder, leaving only Bank Asya as independently Turkish. Even Bank Asya has been a target for GCC acquisition with Qatar Islamic Bank sniffing around the bank in March of this year [see Issue 5].
However, the Islamic finance sector is set to become busier with Fahrettin Yahşi, head of Albaraka Türk and chairman of the Turkish Association of Participation Banks (TKBB), leaking to the press last month that more Gulf lenders are lining up to join the participation banking scene in Turkey. He told the Anatolian News Agency that: “We have heard some news. Some [Islamic] banks from the Gulf region are in the process of talks to enter the Turkish finance sector by setting up a new participation bank in Turkey. It takes a long time to reach a final decision in the Gulf countries. Besides this, there is also talk in the [participation banking] sector that Adabank could become Turkey’s fifth participation bank.”
On the product side, Turkey has been slow to enter the Sukuk market, but that again is set to change. Kuveyt Türk was first in according to Zawya’s Sukuk Monitor, with a $100m, three-year Wakala Sukuk that closed at the end of August 2010. The bank followed this up with a $350m five-year Ijarah Sukuk that is set to close on the 30 October with a profit margin of 5.875%. This Sukuk is being arranged by Abu Dhabi Islamic Bank, Standard Chartered, HSBC, the Liquidity Management House and Commerzbank.
Both Albaraka Türk and Bank Asya have announced Sukuk, with Albaraka raising $350m in a five-year dual currency Murabahah offering a 6% profit rate. Bank Asya is reported to be looking for $300m for a similar issue. The biggie, however, is a rumored Turkey Sovereign Sukuk, but this has been on and off since 2009.
Foreign firms, realizing that there is an appetite for Sukuk in Turkey, both at an interbank and retail level, are keen on getting a slice of Turkey’s burgeoning marketplace. At the beginning of the week Dubai’s Noor Islamic Bank said it had been mandated to arrange and lead manage more than $1.4bn Islamic finance capital market deals in Turkey in the last 18 months. One of the most striking features of the transactions arranged by Noor was that 56% of the participants were conventional banks. Its latest deal was the Albaraka Türk Sukuk, which became Turkey’s biggest Islamic finance transaction to date.
Foreign firms, realizing that there is an appetite for Sukuk in Turkey, both at an interbank and retail level, are keen on getting a slice of Turkey’s burgeoning marketplace. At the beginning of the week Dubai’s Noor Islamic Bank said it had been mandated to arrange and lead manage more than $1.4bn Islamic finance capital market deals in Turkey in the last 18 months. One of the most striking features of the transactions arranged by Noor was that 56% of the participants were conventional banks. Its latest deal was the Albaraka Türk Sukuk, which became Turkey’s biggest Islamic finance transaction to date.
But it’s not just the GCC the Turkish participation banks are wooing, Kuveyt Türk was recently spotted in Malaysia’s capital, Kuala Lumpur hoovering up Islamic investment from Malaysian and Singaporean investors into its Sukuk.
As another fillip, Türkiye Finans, perhaps using its Saudi connections, was granted a $75m line of finance from the Islamic Development Bank providing long-term financing opportunities to the domestic SME sector through Ijarah and Istisna’a loans. The plan is to help develop key targeted sectors, notably agriculture and food security, transport, energy and manufacturing and is expected to contribute towards job creation.
Things are looking bright for Turkey and after a slow start could well become a leading light in Islamic finance, drawing the global industry’s epicenter just a little more to the west.
