Turkish Forum

Tag: Islamic banking

  • Turkey’s Ziraat says working to set up Islamic bank

    Turkey’s Ziraat says working to set up Islamic bank

    (Reuters) – Ziraat Bank, Turkey’s largest state-run lender, is planning an Islamic bank, known locally as a “participation bank”, and would consider going into partnership with a foreign lender, General Manager Huseyin Aydin.

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    After proceeding slowly with the development of Islamic finance for years, partly because of the sensitivities of its secular political system, Turkey has recently begun to tap the sector, issuing its first sovereign sukuk last September.

    The development of Turkey’s sukuk, or Islamic bond, market is of interest to countries around the world, since Turkey’s fast-growing economy could become a major issuer of Islamic debt and influence trends throughout the industry.

    “Ziraat Bank is working towards establishing a participation bank, we have set some people to work on this subject. This bank will be established as a separate bank,” Aydin said late on Friday.

    The bank had so far not received a partnership request for the venture but that they would be open to talks.

    “If there is a request we will consider it. However, there cannot be a situation where we are not in control. It would have to be a system where we are the majority shareholder, a system that we can direct,” he said.

    Because of political sensitivities, and to adhere to local law, Islamic banks in Turkey describe themselves as participation banks and sukuk are described as participation certificates, a reference to the fact that instead of paying investors interest, they pay returns on a pool of assets.

    There are currently four participation banks operating in Turkey: Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans. Kuveyt Turk, a unit of Kuwait Finance House, issued the country’s first sukuk in 2010.

    After Turkey’s landmark September issue of a $1.5 billion sukuk, which drew massive demand, it has now issued three sukuk, two of them lira-denominated totalling 3.14 billion lira ($ 1.75 billion) and one dollar-denominated worth $ 1.5 billion.

    Turkey is now also working on new regulations to allow wider use of Islamic bonds, which could see sukuk issues employed by the government and corporations for project finance and infrastructure development.

    Ziraat is Turkey’s largest state-run bank and its second- largest by assets after Is Bank, with 162.9 billion lira ($90 billion) in assets. Its net profit rose 26 percent last year to 2.65 billion lira.

    General Manager Aydin told Reuters in February the bank was being prepared for a possible IPO although there was no final decision on the timing of a sale. Sources close to the matter have said up to a quarter of the bank could be sold next year in what Ziraat hopes will be one of Turkey’s biggest stock market listings. (Reporting by Ebru Tuncay; Writing by Jonathon Burch; editing by Ron Askew)

    via Turkey’s Ziraat says working to set up Islamic bank | Reuters.

  • Turkey signs cooperation protocol with Islamic bank

    Turkey signs cooperation protocol with Islamic bank

    IDB_LogoTurkey on Saturday signed a memorandum of understanding with the Islamic Development Bank (IDB), Anadolu Agency reported.

    The MoU was signed by Turkish Economy Minister Zafer Caglayan and Ahmed Mohammed Ali Al-Madani, IDB’s president in Jeddah, Saudi Arabia.

    The deal seeks to boost trade and investment between Turkey and and the members of the Islamic Development Bank.

    via Turkey signs cooperation protocol with Islamic bank – Trend.Az.

  • QFC, Turkey have best Islamic finance-friendly tax systems

    QFC, Turkey have best Islamic finance-friendly tax systems

    DOHA: The Qatar Financial Centre (QFC) and Turkey have the most Islamic Finance-friendly tax systems out of eight countries in the Mena region.

    The Phase-1 of a study, sponsored by QFC in partnership with the Washington DC-based International Tax and Investment Center,showed that while simpler Islamic finance transactions can be carried out in some countries without prohibitive tax costs, of the countries reviewed only Turkey and the QFC have a tax system that enables sukuk transactions to be carried out without excessive tax costs.

    The study, conducted by three leading experts, Mohammed Amin, Salah Gueydi and Hafiz Choudhury, examined two alternative approaches a country can take to update its tax system to support Islamic finance transactions, and concludes by recommending the one that is adopted in Malaysia as being quicker and simpler to implement for Muslim majority countries.

    The study reviewed the tax treatment of four common Islamic finance structures, commodity murabaha, sukuk, salaam and istisna in eight Mena region countries: Egypt, Jordan, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Turkey, and also in the QFC.

    The detailed research work was led by Mohammed Amin who is an experienced Islamic finance consultant and was previously UK Head of Islamic Finance at PricewaterhouseCoopers LLP, with the collaboration of Salah Gueydi, Senior Tax Advisor, Ministry of Economy & Finance, Qatar and Hafiz Choudhury, Tax Administration and Policy Advisor, International Tax and Investment Center. Ernst & Young’s Qatar office coordinated the distribution of questionnaires to Ernst & Young’s offices in the MENA region for completion and review by country tax authorities while PricewaterhouseCoopers Malaysia completed a questionnaire for Malaysia to provide a comparison from outside the MENA region. The United Kingdom provided a second non-MENA comparison, based upon Mohammed Amin’s knowledge as a UK tax advisor.

    The report is the first of a series. The team intends to extend the work in future studies to cover, for example, the impact of consumption taxes such as Value Added Tax on Islamic finance transactions, the cross border treatment of Islamic finance transactions within international double tax treaty arrangements designed primarily with conventional finance in mind, the Zakat treatment of Islamic finance transactions and the Shariah governance framework for Islamic finance. Other countries in the Mena region may also be reviewed in subsequent reports.

    Ian Anderson, Chief Finance and Tax Officer at the QFC Authority, commented: “The QFC Authority welcomes the findings and recommendations of this pioneering study into the tax treatment of cross-border Islamic finance transactions within the Mena region. Islamic finance is of growing importance within the Mena region, but the taxation systems of almost all Mena countries were developed in an environment of conventional finance. This too often means that Islamic finance suffers an additional and therefore unfair tax burden not borne by conventional finance. This report points out the best way forward to help level the playing field in the Mena region and potentially beyond. We are delighted to have sponsored this research, the first of its kind, and support the development of Islamic Finance worldwide.”

    The Peninsula

    via QFC, Turkey have best Islamic finance-friendly tax systems.

  • Kuveyt Turk aims to become Germany’s first Islamic bank in 2013

    Kuveyt Turk aims to become Germany’s first Islamic bank in 2013

    By Seda Sezer and Ebru Tuncay

    ISTANBUL | Wed Nov 28, 2012 8:24am EST

    Nov 28 (Reuters) – Kuwait Finance House’s Turkish unit Kuveyt Turk has applied for a German banking licence and aims to become the first Islamic bank in Europe’s largest economy, Chief Executive Ufuk Uyan told Reuters in an interview.

    Kuveyt Turk – which issued a $350 million sukuk, or Islamic bond, last year – is awaiting a response from German financial watchdog BaFin but hopes the application process will be completed next year, Uyan said.

    “We are trying to obtain a full banking license,” he told Reuters in his office in Istanbul. “We plan to open branches in Germany and if this model becomes successful we could consider going to other European countries.”

    Uyan said Kuveyt Turk planned to invest initial capital of 45 million euros ($58 million) in its planned German unit.

    ($1 = 0.7733 euros) (Writing by Seda Sezer; Editing by Nick Tattersall)

    via Kuveyt Turk aims to become Germany’s first Islamic bank in 2013-CEO | Reuters.

  • Turkey may become major sukuk source for Gulf investors

    Turkey may become major sukuk source for Gulf investors

    Turkey may become major sukuk source for Gulf investors

    Friday, 04 November 2011

    Turkey which has not seriously underperformed the Gulf credit, has also a positive outlooks from the rating agencies, and this make it a potential source for Sukuk market for the Arab Gulf. (File Photo)

    By Shaheen Pasha and Rachna Uppal
    Reuters Dubai

    Strong demand for a sukuk issued by Turkish bank Kuveyt Turk last month underlines how Turkey may become a major source of Islamic bonds for Gulf investors who are keen to diversify geographically.

    The $350 million sukuk, issued at par and carrying a profit rate of 5.875 percent, was only the second sukuk issued from Turkey. But it attracted orders totaling over $550 million ̶ and Gulf investors accounted for nearly 70 percent of final subscribers, according to data released by the lead arrangers.

    That may presage an important shift in investor interest. Traditionally, Gulf investors have not focused on bonds from Turkey, instead preferring debt from names in the immediate region with which they are most familiar and comfortable.

    Now, however, the relatively comfortable way in which Turkey’s economy is coping with global weakness ̶ combined with strong appetite for sukuk in general, since they have proved less volatile during this year’s market instability than conventional bonds ̶ may be changing Gulf investors’ priorities.

    “Turkish government USD paper and bank paper have been in issuance for a number of years now, but have not been a focus of MENA market players as there have been plenty of more locally- issued and better-understood names out there,” said Mark Watts, head of fixed income at National Bank of Abu Dhabi.

    “There are signs that this is changing as the ever-present hunt for yield forces investors to widen their horizons. Sukuk from Turkey is a relatively new phenomena for GCC investors… Turkey’s performance dynamics mean that any smart fund manager will want to take a look at gaining exposure.”

    Stability

    Sentiment towards Turkish debt, like that towards other countries, has been hit by jitters over the European debt crisis; five-year Turkish sovereign credit default swaps surged to 251 basis points, 30 points wider on the day, in response to news on Monday that Greece would call a referendum on its bailout.

    But Turkey, which is rated BB, Ba2 and BB+ by the three major rating agencies, slightly below investment grade, with positive outlooks from all of them, has not seriously underperformed Gulf credits. Its CDS are tighter than unrated Dubai and BBB-rated Bahrain, though wider than AA-rated Abu Dhabi and Qatar.

    Also, the profile of sukuk investors favors a hold-to-maturity investment which makes secondary market trading of Islamic bonds less liquid, but also less volatile. This has helped sukuk in general perform better than many conventional bonds in recent months.

    The yield on the first Turkish sukuk, a $100 million, three-year bond issued in 2010 by Kuveyt Turk , an affiliate of Kuwait Finance House , is down about 55 bps since end-2010 and up only 20 bps since the start of September, when the Greek crisis began worsening further. This is probably because there is minimal trading in the bond — but it still underlines how sukuk, with their more conservative investor base, are less vulnerable to wide price swings.

    By contrast, the yield on Turkey’s 7 percent, $1.5 billion conventional sovereign bond, issued in 2008 and maturing in March 2019, is up about 4 bps this year and 30 bps higher than its level at the start of September.

    “The pricing in the (conventional) bond market is difficult. There is liquidity around in the sukuk market, so there might be better pricing,” said Debashis Dey, partner at law firm Clifford Chance in Dubai.

    A further attraction of Turkish sukuk is that legislative changes by Turkey this year have created a relatively favorable environment for Islamic debt issuance ̶ in some important ways, more favorable than the environment in the Gulf.

    For example, last month’s sukuk from Kuveyt Turk was able to combine asset-backed elements, including the sale and transfer of tangible real estate to an onshore special purpose vehicle, with asset-based elements; this increased the perceived safety of the bond for investors. In the Gulf, factors such as high land transfer fees make asset-backed deals more expensive and difficult.

    Outlook

    Turkey’s Bank Asya has completed roadshows for a potential five-year sukuk of up to $300 million, and one United Arab Emirates-based trader said there was “decent” interest from Gulf accounts in a deal. The trader said any issue was likely to come after the Eid al-Adha holidays in the region next week. Asya has mandated Citi and UBS for the deal.

    Another bank, Albaraka Turk , has awarded a mandate for a sukuk of around $200 million which it wants to issue before year-end, its general manager Fahrettin Yahsi told Reuters in September.

    For Turkey to become a major issuer of sukuk, however, it will have to move beyond bank issues of sukuk to issues by a wide range of companies. This may prove difficult, at least in the short term with the global economy so weak; the International Monetary Fund expects Turkey’s economic growth to slow to 2.5 percent next year from 7.5 percent this year.

    “We have recently almost exclusively seen Turkish financial institutions come to market to raise funds, either through conventional or Islamic paper,” said Rizwan Kanji, debt capital markets partner at law firm King & Spalding, who advised on the Kuveyt Turk sukuk.

    “One primary reason may be because the Turkish banking sector is highly regulated and supervised and therefore faring relatively better than other non-financial sector-related industries in Turkey.”

    Another big question is whether the Turkish government will issue a sovereign sukuk, which could give a big boost to the market by providing a benchmark off which other Turkish Islamic debt could price.

    “It’s time for the Turkish government to issue a sovereign sukuk as a starter and that will hopefully be followed by other institutions and banks,” said Mohieddine Kronfol, chief investment officer at Franklin Templeton Investments in Dubai.

    “Certainly if that happens it will be very good for Turkey and very good for the Islamic banking industry.”

    A sovereign sukuk may be a step the country is not yet ready to take, however. Prime Minister Tayyip Erdogan’s ruling AK Party, a socially conservative but economically liberal party with roots in political Islam, might well favour such an issue, and the government has previously indicated it could issue a sukuk to diversify its funding options.

    But issues such as pricing and Turkey’s desire to satisfy appetite for its conventional debt may continue to delay a sovereign sukuk. Also, a need to accommodate secular sentiment ̶ because of Turkey’s secular tradition, Islamic banks are referred to in the country as “participation banks” ̶ means the government may wait a while.

    “I think the fact that they are a secular nation and they made an effort to leave religion out of financial factors has been a contributing factor” to the lack of a sovereign sukuk so far, Kronfol said.

    “But it doesn’t make sense, especially since you have countries like Luxembourg and France issuing guidelines to issue sukuk.”

    Legislation for a Turkish sovereign sukuk is in place but there has been no clear signal from the government on its intentions for the past couple of years. The Treasury’s new financing programme for 2012 includes the sentence, “Depending on market conditions, new external or domestic debt instruments may be issued.”

  • Turkey: Islamic Banking Making Inroads

    Turkey: Islamic Banking Making Inroads

    Justin Vela, Eurasianet.org | Nov. 4, 2011, 11:49 AM | 262 |

    istanbul turkey

    istanbul turkey

    Image: By GothPhil on flickr

    Justin Vela

    Justin Vela is a freelance reporter based in Istanbul.

    Amid Turkey’s turn away from strict secularism, Islamic banking practices in the country are gaining currency.

    But they still face significant obstacles as they strive to enter the financial mainstream.

    Turkey at present has four Islamic banks — three that are partially owned by companies based in the Persian Gulf — which accounted for 5 percent of Turkey’s 1-trillion-lira ($559 billion) banking sector in late 2010, according to data from the Participation Banks’ Association of Turkey, a lobbyist group for Islamic banks.

    The banks are known as “participation banks,” since, in keeping with Islamic tenets, depositors and borrowers share the risk of financial transactions with the banks themselves.

    Interest is not charged. Clients are mostly pious entrepreneurs from the central region of Anatolia, especially in cities such as Gaziantep, Konya, and Kayseri.

    The area is home to several companies that have become known as “Anatolian Tigers” for their rapid growth.

    Until sharia-compliant banking was introduced to Turkey in the 1980s, many such individuals kept their money “under the mattress,” both because of mistrust of traditional banking, and their desire to avoid breaking religious tenets regarding the payment of interest, said Osman Akyuz, secretary-general of the Participation Banks’ Association of Turkey. No longer.

    While still tiny, Islamic banks’ share of Turkey’s banking market is nearly twice as large as it was in 2005, when consumer wariness of such banks was stronger.

    In a September report, the international ratings agency Standard & Poor’s said that Islamic banking in Turkey is set for further growth, particularly if the country cultivates stronger ties with wealthy Gulf states.

    Turkey’s booming real estate sector accounts for the bulk of Islamic banking activity, but the banks also provide working capital and equipment to companies involved in construction, trade and industry, three of the country’s strongest economic sectors.

    To encourage the development of Islamic banks, Turkey’s governing Islamist-rooted Justice and Development Party (AKP) has granted them tax-neutral status. At the beginning of the year, an index of sharia-compliant companies also was listed on the Istanbul Stock Exchange.

    As some financial experts see it, the growth rate in Islamic banks hasn’t matched expectations, taking into account the AKP’s prolonged tenure in power. One Islamic finance expert cautions that the sector’s growth, in fact, has been “very sluggish.”

    “[T]he AKP has 50-percent popularity and Islamic banking is 4 to 5 percent of the banking sector,” noted Mehmet Asutay, the director of a postgraduate program in Islamic finance at Durham University in the United Kingdom. While Turkey’s overall banking index has gained 19 percent since August, sharia-compliant Bank Asya and Albaraka Turk gained only 12 percent and 4.9 percent, respectively, Bloomberg reported in September.

    Investors reportedly are concerned that Turkey’s slowing pace of economic growth will hurt the banks’ ability to turn a profit on its lending. That becomes even more critical for Islamic banks since they do not charge interest, and share the profit and loss risks of their customers.

    Other obstacles could hinder growth possibilities. First and foremost are Turkey’s 50-some conventional banks, which hold a large share of the country’s private-sector assets. Drawing customers’ attention away from these banks has been a problem, specialists say, since Islamic banks suffer from a lack of qualified personnel to smooth the transition from conventional banking.

    Akyuz concedes that the expansion has been lackluster. “Presently, four Islamic banks [are] not enough for Turkey,” he asserted. “It should be six to seven at [this] stage.”

    But that involves convincing the country’s banking officials of the need. While in the past, Islamic banks were not included under Turkish banking law, they now are subject to the same rules. Amid concerns about the Turkish lira’s strength, the Central Bank is in no hurry to authorize the opening of more banks, sharia-compliant or otherwise.

    Ilham Mehraliyev, a specialist in Islamic finance in Turkey at DinarStandard, a research firm specializing in Muslim markets, believes Islamic banks retain growth potential. But they will have to choose their spots carefully, manage growth prudently and address their “lack of qualified human resources,” he said. If all goes well, expansion into foreign financial markets eventually may become “within [their] capacity.” The Turkish owned Bank Asya is already an investor in Tamweel Holding, a company that provides Islamic banking services in several African countries.

    In the meantime, Akyuz, the Islamic banking advocate, maintains that there are no competitive tensions between Turkey’s traditional financial institutions and Islamic banks. “In the last 25 years, we have reached a consensus,” he said. “The only difference is in the methods of collecting money, and loaning money.”

    This post originally appeared at Eurasianet.org.

    via Turkey: Islamic Banking Making Inroads.