6.3% SHARE OF TOTAL BANKING ASSETS

Turkey 2021 | FINANCE | VIP INTERVIEW

TBY talks to Osman Akyüz, Secretary General of Participation Banks Association of Turkey (TKBB), on the country's total banking assets, sukuk listings, and the 1915 Çanakkale Bridge.

Participation banks in Turkey have ambitious goals to increase their share of total banking assets in the country. How is the TKBB working with different stakeholders to increase this asset base?

We set a goal in 2015 to increase participation banks' share of total banking assets to 15% by 2025. By the end of 2019, this figure reached 6.3%. We are working hard to reach this strategic goal with the support of the government. Its support has helped create an environment where participation banking can succeed, with regulations that make it sustainable. Crucially, the government established three participation banks, bringing the total number of participation banks to six and the total number of branches to 1,180. All three private-sector participation banks were originally founded by investors from the GCC region. As the Association, we work with our member banks, government bodies, and the banking authority to establish different working committees that will tackle issues faced by the sector. We are also working with media groups and companies to raise public awareness about participation banking. While we are excited to expand, we want to increase our share in the banking sector gradually and at a healthy pace, so as to remain financially strong. We also established the Central Advisory Board under the TKBB in 2018, which is responsible for setting rules, standards and principles for participation banks and other Islamic financial institutions as well as setting a general framework on Islamic financial matters highlighted by financial authorities.

What was the investor interest in sukuk once it was listed?

In Turkey, the public and private sectors issue sukuk, which is locally named as lease certificates. The first lease certificate issued by the government was in 2012 for participation banks to inject liquidity into the system. Now, the government regularly issues lease certificates in Turkey for participation banks, traditional banks, insurance companies, pension funds as well as retail investors. Also, in 2017 the government started to issue an innovative sukuk called “gold-indexed lease certificate" to deepen the domestic market. This new instrument, designed to appeal to the public, aimed to bring the idle gold into the financial system and raise low savings rate in the economy. As of 2019, the lease certificates that participation banks issue in the local market for their customers can now be securitized and traded in Borsa Istanbul, the national stock exchange of Turkey, which will widen the investor base for the entire participation banking system.

What collaboration has emerged from the MoU TKBB signed with the Islamic Development Bank (IsDB) in 2018?

The MoU signed between two institutions has paved the way for cooperation between IsDB and our member participation banks. Turkey is an important partner and founding member of the IsDB and continues to be one of the largest beneficiaries of IsDB financing. The Bank provides financing to Turkey and other Islamic countries for big development projects in which IsDB and participation banks collaborate to finance important infrastructure investments, such as highway and bridge projects within Turkey. For example, the 1915 Çanakkale Bridge is a jointly financed project with Kuveyt Türk of EUR200 million. Also, IsDB partners with some of our banks to finance big city hospitals.

What role does TKBB hold in bringing together participation banks to jointly finance large-scale projects?

The government owned participation banks entered the sector in 2015 and are currently not large enough to enter into infrastructure investments, but with increasing assets over time they are expected to play a role in these investments. As for private participation banks, they have been more active in infrastructure investments, such as energy, healthcare, road and motorway projects. In addition to participation banks, recently, development and investment banks in Turkey have been given the license to conduct Islamic finance operations. This is a critical development in the sector that will have a positive impact on utilizing Islamic finance for infrastructure investments. While jointly financed projects are often beneficial to the public, it can be difficult for individual banks to choose this route over projects on their own. There is much that can be accomplished through collaboration. When our member banks face difficulties, they bring them to our table where we discuss them and take action with the government, the public, or customers. We have the advantage of having only six members, which makes it easier to come together and take a decision to take action.

What are your most important goals for 2020?

In recent years, good performance of participation banks, increase in sukuk issuances and regulatory reforms have been positive developments for the sector. We expect the positive developments to continue in 2020, as the participation finance industry continues to be one of the important strategies of the government to promote Istanbul as a financial center and hub for Islamic finance. Our goal is to increase our share in the banking sector and contribute more to the economy. Financing is extremely important for economic growth, which is why we need to support the creation of the participation finance ecosystem in Turkey and take increasing role in the contribution to the country's economy. We are improving and complementing our financial system with an alternative type of banking that we have to promote and keep strong.