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Turkey’s Islamic banks likely to maintain high growth rates in loan volume

Turkey’s Islamic banks likely to maintain high growth rates in loan volume

ANKARA: Islamic banks in Turkey are expected to maintain high growth rates in loan volume this year, the credit rating agency Fitch said in a statement, pointing to government support and anticipated new entrants being among the main drivers.

Turkish Islamic banks — excluding troubled Bank Asya — expanded their loan books by 34 percent year-on-year in the first half of 2015, while the corresponding growth rate for the whole banking sector was 25 percent in the same period, Fitch said on Monday. Putting the anticipated growth rate at 25 percent for the sector for 2016, Fitch added it expects the volume for Islamic banks to remain more than this rate.

After three months under interim management, the Banking Regulation and Supervision Agency (BDDK) announced in May of last year that it had handed over control of Turkey’s largest Islamic lender, Bank Asya, to the Savings Deposit Insurance Fund (TMSF) in what most have called a politically motivated move. Bank Asya was established by sympathizers of the faith-based Hizmet or Gülen movement, which the government has been pressuring ever since corruption investigations involving ministers and others became public in 2013, accusing it of attempting a coup. The movement vehemently denies the accusations.

Meanwhile, Abdurrahman Dilipak, a staunchly pro-government columnist, wrote on Monday that İş Bankası, Turkey’s biggest listed lender and in which the main opposition Republican People’s Party (CHP) has a 28 percent stake, could be turned into an Islamic bank after a takeover by the government.

Last week, President Recep Tayyip Erdoğan’s top adviser, Yiğit Bulut, said necessary legislation should be enacted urgently and İş Bankası should be turned into a public bank due to its alleged fraudulent activities.

The bank was established in 1924 on the orders of the founder of the Turkish Republic, Mustafa Kemal Atatürk, who gave TL 250,000 of the total TL 1 million capital that set up the bank. Before he passed away, he left all his property to the CHP, including his shares in the bank. Dilipak argues regulators may now take over the funds provided to the predecessor of İş Bankası by the Ottoman government for a new Islamic bank or they may opt to turn the whole bank into an Islamic lender upon the approval of the other stakeholders.

Fitch views that government efforts would support the sector by several means, including new regulations that allow for more Sharia-compliant instruments, the statement read.

“The Turkish government has a strategy to increase the Islamic banks’ share of total sector assets to 15 percent by 2023. To support this strategy, state-owned Ziraat Bankası established a participation bank, Ziraat Katılım Bankası, in May 2015; the two other state-owned commercial banks are set to follow suit in the foreseeable future,” the Fitch statement said.

However, the statement added, the limited range of instruments presently available to Islamic banks remains a constraint on funding, investing and lending. The hefty weight of foreign currency-denominated lending of Islamic banks also poses a major threat, the agency said.