www.todayszaman.com - Comments from theologian Hayrettin Karaman, top advisor to Turkish participation banks -- which refrain from being involved in financial activities deemed forbidden in Islam, claimed on Feb. 19 that revenue-indexed bonds (GES) are no different than government bonds in terms of interest charged and this has created a difficult situation for participation banks in Turkey, which hold $1 billion in GES. (source)
Karaman's comments, published on Feb. 19 in the Yeni Şafak daily, carry the authority of a fatwa -- a religious edict. They led participation banks to quickly return their Treasury-issued GES and exchange them for the Islamic equivalent of bonds, called sukuk. Karaman's comments put the Treasury in difficult straits because GES were first issued as interest-free by the Treasury in 2009. Participation banks declined to bid at the recent Treasury tender to sell GES, held on Feb. 17. Karaman explained that GES have structural errors because they are no different than government bonds and GES earnings would come from interest as long as these GES are not turned into revenue-sharing bonds (GOS).
Association of Turkish Participation Banks (TKBB) Secretary-General Osman Akyüz said Karaman's comments are a binding declaration for the TKBB and that there is a need for a new roadmap. He noted that the TKBB has about $1 billion in GES and said, “We met with Treasury officials and asked to exchange our GES for Islamic bonds before their redemption date in August.” He added: “This exchange would resolve the problems associated with Islamic bonds and they would hereafter be issued by the government. The Treasury must issue these bonds in terms of Turkish lira by August.”
According to the TKBB, three participation banks have $984 million worth of GES in their portfolios. Another $459 million held by individuals and institutions comprise the rest of the GES in Turkey. GES, which were largely bought by conservative investors and participation banks, were issued by the government to increase the number of investors in debt bonds within the state and to diversify the available financial instruments.
Source : http://www.todayszaman.com/news-275801--top-advisor-to-participation-banks-says-ges-equal-to-govt-bonds.html - March 29, 2012
