By Arno Maierbrugger/Gulf Times Correspondent /Bangkok
The Turkish government through its banking regulations and supervisory authority BDDK last week approved a new Islamic lender, Emlak Katilim Bankasi, to take up operations, according to a February 27 announcement in Turkey’s Official Gazette. This brings the number of Islamic banks – or participation banks, how they are called locally – to six in the country and is a step further on the way for Turkey to become a regional hub for Islamic finance.
The other five Islamic banks are state-controlled Ziraat Bankasi and VakifBank, which received licences to conduct Islamic banking in 2015 and 2016, respectively, as well as Albaraka Turk, Kuveyt Turk, majority-owned by Kuwait Finance House, as well as Turkiye Finans.
Ziraat Bankasi is the largest state-owned lender and stands under the control of Turkey’s sovereign wealth fund, which is chaired by Turkey’s President Recep Tayyip Erdogan, who is the main driver of growth of the Islamic banking industry in the country as he sees conventional interest rate policy as a threat to Turkey’s economic development.
As per December 2018, the existing Islamic banks in Turkey – with over 1,100 branches and 15,650 employees – made net profit of $403mn and had assets under management of around $39bn, which accounts for 5.3% of the banking sector in the country, data from the Participation Banks Association of Turkey shows. The share was up from $30.2bn, or 4.9%, in 2017, which translates into year-on-year growth of around 29%.
The government has set the goal to increase the share of Shariah-compliant banking assets to 15% of the country’s total banking sector by 2025.
However, Emlak Bank is not an entirely new player. It had been a public bank under the name of Emlak Kredi Bank in Turkey since 1946, but was forced into liquidation in 2001 by the Turkish banking regulator as a part of pledges made to the International Monetary Fund during Turkey’s banking crisis back then. With the new licence and the altered name, Emlak Bank is now expected to restart with a new business model of Shariah-compliant home financing, according to Turkey’s Minister of Treasury and Finance, Berat Albayrak.
Still, it is not clear yet how much it would contribute to total industry assets since the bank is literally being revived from scratch. According to Albayrak, Emlak Bank has been redesigned as part of a new economic model for Turkey in response to the current monetary crisis with a focus on “sustainable investment” in the housing market.
There are great hopes that the Islamic banking industry could bring back stability for Turkey’s economy and its financial market which has been in crisis mode all over 2018. Being more resilient to financial volatility as per their structure, Islamic banks under state supervision could indeed have the potential to ease debt problems in Turkey, which in the past caused high inflation and rising borrowing costs. With the new market entrant and stronger promotion of Shariah-compliant finance and a “proactive approach” by government and regulator, the Islamic banking sector in Turkey is expected to grow further by over 30% in 2019 in terms of assets, said Osman Akyuz, head of the Participation Banks Association of Turkey. He noted that the existing Islamic banks were well capitalised with total equity of around $3bn and had “no liquidity problems.”
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