Turkey has come a long way from the long dark night of February 19th, 2001, when former Prime Minister Ecevit announced a “serious crisis,” which at once consummated and precipitated a huge stock market crash. The Central Bank lost $5 billion in reserves, while the interest rate neared 3.0%, ushering in a period of collective soul searching. Dependence on foreign investment was deigned a key culprit and a wounded nation spent one-third of its GDP refinancing the banking sector in particular. The Banking Regulation and Supervision Agency (BDDK) dealt stringently with the fallout by imposing strict controls on the sector, which greatly impacted the licensing system until 2011.
When the BDDK sanctioned Lebanese Bank Audi’s Turkish entry through its subsidiary Odeabank in October 2011, it was the first time the watchdog had granted a license in 12 years. Since then further licenses, by no means easy to gain, have been issued to the Bank of Tokyo-Mitsubishi, Intesa Sanpaulo from Italy, Dutch Rabobank, and most recently the leviathan Industrial and Commercial Bank of China (ICBC). Meanwhile, the government has sought to fully capitalize on the previously marginalized participation banking industry, neutrally coined participation banking, in the earthy terminology of the secular state.
Prima facie a dramatic change in tack, the origins of this revision are not difficult to fathom. Turkey’s government has spent years relentlessly pursuing a long-term and prudent economic strategy focused on industry and diversification, which has been paying significant dividends. The hitherto closed-off banking industry was identified as ripe for strong foreign investment and competition to help reinforce economic growth. The arrival of Odeabank as the first foreign player under this emerging paradigm reflected an excellent fit and microcosmic reflection of the sector’s new direction.
Launching operations in November 2012, Odeabank quickly established its goal of becoming a top 15 bank in Turkey, chiefly through utilizing the regional presence and universal profile of main shareholder Bank Audi. With $7 billion in assets, 19 locations, and almost 1,000 employees, the subsidiary has succeeded in the competitive Turkish market by leveraging its trade and investment flow expertise and linking Turkey to the MENA region through its parent. Odeabank’s success is a natural consequence of a discernible shift in trade patterns with Turkey’s relationship with the Middle East, showing strong development while trade with the EU gradually declines.
While European banks BBVA and Rabobank are among the success stories of licensing liberalization, the underlying tale is of the dominance of Middle Eastern and Asian banks in tying up the sector’s spoils. Kuwaiti Burgan bank has expanded across the nation after acquiring Tekfen AS in a $349 million deal, while the Commercial Bank of Qatar has flourished since absorbing Alternatifbank after a battle with Commercial Bank of China won with a $460 million layout. Not to be denied, Eastern powerhouse ICBC acquired a 75.5% stake in Tekstilbank for $256 million following a successful path forged by Tokyo-Mitsubishi.
The eastward trend is also evident in the other key licensing development making waves as T.C. Ziraat Bankası A.Åž., Turkey’s largest bank, was granted an incorporation license by the BDDK, making it the first state-owned Participation bank in Turkey. Halkbank and Vakıfbank have announced plans to follow suit, while other Turkish banks liquidated in the 2001 crisis are anticipated to resurrect their legacies as providers. The Participation Banks Association of Turkey has announced a target of tripling the share of Participation banking assets in Turkey by 2023 to widen the nation’s chunk of a fiercely growing industry already worth in excess of $1 trillion worldwide.
While the reemergence of Participation banking also points toward a shift in geographical emphasis, the key determinant here is the quest for competition, investment, and diversification. By relaxing its licensing regime, Turkey is finally laying to rest the ghosts of 2001 and opening the doors to banking business of all stripes. Under the watchful eye of the BDDK, stability will be a primary concern and with the right strategy prosperity this time around will not be built on a house of cards.