The last decade in Turkey has seen an immense macro-economic
growth that spilled over to various different branches of the
national economy. The banking sector has been one of the leading
industries to benefit from this growth. What accounted for such
growth was in part domestic and in part international.
Macro-economic stability that has been provided by the government
coalesced with the ubiquitous presence of global liquidity
operating on low interest rates. Such a coalition had led the
Turkish banking industry to register significant rates of profits
and to inoculate a virtuous cycle in to the Turkish economy where
the banking growth was re-invested in to the national economy in
the form of low interest rate credits.
However the global financial crisis erupted in 2008 changed the
entire landscape that the banking industry has to operate in. Since
then not only the cheap credits that had enabled the banking
industry to grow by utilizing the ever growing consumer demand had
ceased to exist but also a recent policy has been adopted by the
authorities based on spending cuts to deal with the problem of
growing current account deficit. Hence, possibly a year of stiff
competition and increasing risks await the banking industry in
Islamic Banking in Turkey
Islamic banking has increasingly emerged both in Turkey and in
the world as a safe haven for the investors especially during such
turbulent times. Such an image stems from its stress on the
traditional methods of banking operations. It does not only ban
interest payments on loans but also imposes stringent rules on some
of the banking operations that had recently led the global banking
industry in to an abyss. Re-bundling of several different financial
assets which had resulted in toxic mortgages and the recent slump
in global financial markets are not employed by the Islamic banking
industry which relies on more conventional methods of banking. More
recently, the Islamic financial instruments are being exploited for
the purposes of project finance in Turkey. One recent example is
the issuance of Sukuk that worth for USD$ 200 million by one of the
leading Turkish construction companies to finance their
The numbers reflect the positive image of the Islamic banking in
Turkey as well. Participatory banks, a term employed in Turkey to
describe the Islamic banks, has taken a course of protracted but
stable growth in Turkey since the year 2000. In 2000 such banks had
only accounted for the 2.13% of the Turkish banking industry but as
of 2011 they had managed to increase their share to 5.55%. The
total amount funds available in the Islamic banks' portfolios
has recently exceeded USD$ 60 billion. As of 2014 the Islamic
banking industry has 966 branches all over Turkey which is more
than 40% increase compared to 2011.
The growth of the industry encapsulates the recent legislative
developments that had went hand in hand with the growth of the
Islamic banking industry. Between 2010 and 2013 three major
directives were adopted by the relevant bodies that paved the way
for the Islamic banking industry to introduce the Islamic financing
instruments to the Turkish market. The earliest of the three was
the Capital Markets Board's decision to lay the legal
foundations of the Special Purpose Vehicles which serve as
intermediaries to sell the Islamic compliant financial instruments.
Then came the regulation that gave the Turkish Treasury the
authority to issue a specific instrument of Islamic finance; Sukuk
al Ijarah. Finally the last one of these three legislations
expanded the scope of Islamic compliant financial instruments to
introduce istisna, murabaha, mudaraba, musharaka and wakala bonds
to the Turkish market.
Islamic banking industry has recently been enjoying an image of
a safe haven for the investors given its reliance on the
conventional methods of banking operations and its rejection of
high risk re-bundled financial assets. The current numbers of
growth in Turkey attest to the development, growth and the positive
image of the Islamic banking in Turkey. However it should be noted
down that the mere existence of an image of safe investment and the
presence of a lucrative market are not enough for the Islamic
banking industry to take off. A legislative framework which will
promote the growth of the industry by solid legal guarantees and
tax related or other kinds of incentives are necessary for the
growth of such an industry. Turkey, by assuring the presence of all
these three factors has managed to create a growing Islamic banking
industry operating in a course of stable growth.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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