gulf-times.com - Turkey’s Islamic banks are lagging behind their non Shariah-compliant counterparts because of investor concern slowing economic growth will hurt the lenders’ ability to generate income from loans.
While Turkey’s overall banking index gained 19% since reaching a 20-month low on August 10, Asya Katilim Bankasi and Albaraka Turk Katilim Bankasi, the nation’s two listed Islamic banks, also known as Participation banks, gained 12% and 4.9%, respectively. (source)
While Turkey’s overall banking index gained 19% since reaching a 20-month low on August 10, Asya Katilim Bankasi and Albaraka Turk Katilim Bankasi, the nation’s two listed Islamic banks, also known as Participation banks, gained 12% and 4.9%, respectively. (source)
The ratio of loans to assets at Albaraka Turk is 77% and 76% at Bank Asya, compared with 54% for Turkiye Garanti Bankasi AS, the nation’s biggest bank by market value.
“Participation banks are very much levered to economic growth due to high credit concentration in their balance sheets,” Ercan Uysal, head of research at Standard Bank Group Ltd’s unit in Turkey, said in response to e-mailed questions on Thursday. “Thus if the market expects a slowdown or recession these guys are more vulnerable than conventional banks and bad loans can easily pile up.”
The nation’s economy will grow 2.2% next year after 6.6% in 2011, the International Monetary Fund forecasts, as expansion stalls in the euro region, Turkey’s biggest export market. Renaissance Capital, the broker half-owned by Russian billionaire Mikhail Prokhorov, forecast last week the value of non-performing loans in the country will surge 73% next year to 4.1% of total loans.
Islamic banks are prohibited from issuing or buying interest-bearing securities according to Shariah law. The secular nation, where almost all of the 79mn people are Muslim, has four Participation banks, Bank Asya, Albaraka Turk, Turkiye Finans Katilim Bankasi and Kuveyt Turk Katilim Bankasi. The last three are at least part-owned by Arabian Gulf lenders.
Islamic banks’ high dependence on lending gives them “more exposure to small businesses, which usually have higher non- performing loans” and may suffer more in economic downturns than non-Islamic banks, Haydar Acun, managing partner of Sardis Securities Inc in Istanbul, said in an e-mailed response to questions on Thursday. Their performance shows investors are concerned about the health of those business loans, Acun said.
Turkey’s constitution, written by generals in 1980, mandates that religion be kept out of politics. The country allowed companies in April 2010 to issue debt in accordance with Islamic financing rules.
“Concerns about deterioration of asset quality are exaggerated,” Albaraka Turk said in response to e-mailed questions. The bank plans to increase its branch network to 200 from 119 and the Islamic banking industry has the potential to grow its market share in Turkey to 10% from 4.3% it said.
The investor relations department of Bank Asya didn’t immediately respond to phone calls and e-mails seeking comment.
Kuveyt Turk, which hasn’t listed shares, applied to the regulator to sell a $350mn sukuk on Friday.
“There will be interest in Islamic debt out of Participation banks, based on anecdotal evidence,” Giyas Gokkent, Abu Dhabi-based group chief economist at National Bank of Abu Dhabi PJSC, said in a phone interview on Sunday. “In general, there should be demand for Islamic issuance, but it’s just a matter of pricing. If you look at the global context, the spread is going up, so when they tap the market, the costs will be higher.”
Kuveyt Turk sold a 5.25% dollar sukuk last year. The yield on the lender’s Islamic bonds was little changed at 4.51% on Friday. Albaraka Turk is in the process of hiring banks to manage the sale of about $200mn in sukuk by November, Adnan Ahmed Yousif, the chief executive officer of its Bahrain- based parent, said on September 24.
“I wouldn’t be surprised at all if at least one of these banks has to ask for additional capital from investors in the next six to 12 months,” Eli Koen, the co-head of emerging Europe equities at Union Bancaire Privee in London, said in an e-mailed response to question on Thursday.
