Erdogan Retooling Turkish Banks to Boost Islamic Finance

By Ercan Ersoy  

Turkey’s biggest state-owned bank is branching out from being a traditional lender to farmers to providing the country’s largest corporate loan as the government pushes an expansion ahead of an initial public offering.
TC Ziraat Bankasi AS, the Ankara-based lender founded in 1863 during the Ottoman Empire, lent a record $1.6 billion to Cukurova Holding AS last month. To further deepen the bank’s expertise, the government has endorsed a possible takeover of Asya Katilim Bankasi AS (ASYAB), an Islamic lender in Turkey, Deputy Prime Minister Ali Babacan said this month.
“We will be in all areas that we think will support Turkey’s growth,” Ziraat Chief Executive Officer Huseyin Aydin Aydin said in an interview. He declined to discuss concrete targets.
Turkey’s government, which has said it plans to eventually sell shares in the bank, has encouraged Ziraat and two other state-owned lenders to
broaden their offerings and include Islamic banking. The move may increase the state’s sway over financial institutions’ strategy, said Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai.
“While Ziraat remains 100 percent controlled by the government, these transactions will increase concerns about the bank’s corporate governance policies and the government’s influence on the Ziraat’s business strategy,” he said.

Planned Sale

Aydin took over the top job at the bank in 2011 from another state lender, Turkiye Halk Bankasi AS. (HALKB) He’s charted new territory with the loan to Cukurova, the biggest yet by a Turkish bank to a domestic company.
Cukurova used the money to repay debt to Russia’s Alfa Group to recover a 13.8 percent stake at Turkcell Iletisim Hizmetleri AS (TCELL), Turkey’s biggest mobile operator.
“Ziraat is in a phase of growing its assets as a prerequisite for its planned IPO,” said Bulent Sengonul, an analyst at Istanbul-based Is Yatirim, in a telephone interview Aug. 18. “Its interest in Bank Asya is in line with its own decisions and may be in harmony with state banks’ willingness to set up presence in this segment.”
Bank Asya, the possible Ziraat target, is affiliated with the business empire of Fethullah Gulen, a U.S.-based imam, who is at the center of a power struggle with President-elect Recep Tayyip Erdogan’s Ak Party that has accused Gulen and his supporters of illegal wiretapping aimed at plotting a coup to topple the party.
Bank Asya said on Aug . 8 that talks with Qatar Islamic Bank SAQ for a sale had ended. Several government institutions canceled contracts with it earlier this month for the lender to act as cash collector for them. Turkey’s capital markets regulator also didn’t approve the bank’s application for a sukuk sale, citing uncertainty over its ownership structure.
“There is a risk that the Bank Asya transaction, which reportedly has links with the Gulen movement, might be interpreted as a tool to assert political pressure on the government’s opponents,” said Bantis of Commerzbank.