Islamic Banks in Turkey are said to be continuing to thrive and prosper in the heart of a rich population who want to tap into the Shariah compliant methods of financing.
According to Osman Akyuz, the secretary general of TKKB and the former General Manager of Albaraka Turk Participation Bank, total assets of participation banks in 2010 increased by 25 percent on 2009 reaching $28.1 billion; deposits increased by 22 percent to reach $21.9 billion, of which 66 percent were in Turkish lira and 34 percent in foreign currencies; financing allocated by the participation banks grew by 25 percent to reach $20.8 billion; total shareholders' equity increased by 19 percent to $3.5 billion; net income however increased by 4 percent to reach $491.6 million; and the number of branches and number of staff of participation banks totaled 607 and 12,694 respectively growing at a year-on-year rate of 8 percent.
Turkey is still far from other Islamic hubs such as in countries like Saudi Arabia (38 percent);Brunei (40 percent) and Malaysia (21 percent). The current market share of participation banks in Turkey is a mere 6 percent, although bankers such as Ufuk Uyan, CEO of Kuveyt Turk Participation Bank are confident that a target of between 10 percent to 12 percent market share is achievable over the next few years, given the current growth of the sector in Turkey and globally. In fact, there are two new applications with the Turkish banking authorities from abroad for licenses to launch participation banks.
Similarly, the market share of participation banks assets is 4.31 percent; of participatio deposits is 5.4 percent; and of participation financing 6 percent. The financing to deposit ratio of participation banks in 2010 was 96 percent compared with 83 percent for th conventional banking sector in Turkey. In terms of non-performing loans, participation banks also fared better. The NPL for participation banks in 2010 was 341 million Turkish liras or 0.34 percent compared with 379 million liras or 0.47 percent in 2009.
In recent months Kuveyt Turk Participation Bank has pioneered an exchange-traded fund (ETF) backed by physical gold; gold-based current and term accounts; the purchase of gold coins through ATMs; launched the first cooperate sukuk in Turkey (a $100 million Sukuk Al-Ijara); and is planning a second $500 million sukuk later this year. Turkiye Finans pioneered the first participation ETF in the world; it has launched several mutual funds; and a spate of gold-backed current and savings accounts. Albaraka Turk Participation Bank is also finalizing its debut Sukuk issuance; has pioneered products such as the Barakat Card aimed at the small and rural farming community; a franchise and business card.
Asya Bank, the only wholly-Turkish owned of the four participation banks, is setting the pace in several ways. It joined up with the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IDB) Group, to set up Tamweel Africa, a holding company which invests in the equity of Islamic banks, leasing companies and finance and investment entities in Africa. Asya Bank is also planning to expand abroad and according to reports it has applied to the Reserve Bank of India (RBI), the central bank, to open a representative office in Mumbai.
Asya Bank like other Turkish banks is an active raiser of funds through the international Murabaha syndication market. The lack of sukuk legislation has meant that Turkish banks are forced to venture offshore to raise medium-to-long-term funds to finance some of their activities, instead of deposits which are largely short-term. In fact, the Turkish National Assembly in February passed tax and other measures to facilitate the introduction of Sukuk Al-Ijara in Turkey.
As such Turkish participation banks are increasingly exploring the possibilities of raising funds through a Sukuk issuance, albeit dependent on the quality and volume of available Ijara assets that can be securitized.
Asya Bank in fact recently went to the market to raise $300 million in a Murabaha (cost-plus financing) syndicated loan - the largest single such facility extended to a Turkish bank. Because of the huge appetite from the market, the Murabaha facility was upsized from the original $150 million to $300 million. The facility actually comprised two tranches - a $171 million tranche (in US dollars) and a 94.5 million-euro tranche. A record 26 international financial institutions participated in the syndication. They included Standard Chartered Bank in the UK, ABC Islamic Bank in Bahrain, Noor Islamic Bank in Dubai, National Bank of Abu Dhabi, as well as 22 others from the United States, Europe, Turkey, Pakistan and other Middle East and North Africa countries.
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