News Column

Turkey's growing Islamic banking fit for competition against mainstream lenders

February 5, 2014

ISTANBUL (CIHAN)- Turkey's once-fledgling Islamic banking sector has built on a decade of solid growth to reach a total of 6.1 percent of the country's total lending market in 2013. That is according to Hasan KiliÇ, the chief of Turkey's branch of the consulting firm Deloitte , who told Today's Zaman that the sector is becoming increasingly competitive with conventional banking services in Turkey . In 2002, the sector made up just 2 percent of the country's banking services, and has since grown threefold with the introduction of several Gulf lenders and the growth of major Turkish Islamic lenders. "Of course, when it is small, growing a few percentage points is easier. After it's gotten big, maintaining the same growth rates is harder," said KiliÇ. Turkey's Islamic banking assets were estimated at around $36 billion in 2012, the last year for which data is available, and has grown between 15 and 20 percent over the last decade. A recent report by Reuters suggested that the rate of growth far outstripped conventional lending growth in Turkey , which grew by just 13 percent between 2011 and 2012. Reuters estimated that Islamic lenders could underwrite anywhere between $80 billion and $120 billion in assets by the end of 2017. KiliÇ said that the sector has appealed to 'more conservative' customers concerned with religious prohibitions on traditional lending. Islamic banking is often financed though a murabaha loan issuance, which sees the bank purchase a wide variety of goods on behalf of its creditors, who later pay the bank for the goods in installments. The deferred payment model allows the bank to profit -- and extend its customers credit -- without technically charging interest. After the Turkish Central Bank more than doubled interest rates last month, easy credit that extended bank credit lines has dried up, said KiliÇ. That will blunt the growth of loans sector-wide, though KiliÇ focused most on small businesses that formerly depended on cheap loans. "In Turkey , it was easy to come by money," he said. One recent obstacle for Turkey's largest Islamic lender has been the political fallout that has accompanied an ongoing government corruption scandal. Bank Asya's shares have declined 46 percent since Dec. 16 , a drop which has come amid government pressure against the bank. The bank is associated with the Hizmet movement, run by self-exiled Islamic preacher Fetullah Gulen, who Prime Minister Recep Tayyip Erdogan has accused of orchestrating a sweeping anti-corruption investigation that erupted in late December. Turkey's second largest participation bank is Kuveyt TÜrk Participation Bank , while the third largest bank is TÜrkiye Finans Participation Bank . The largest foreign Islamic lender in Turkey is Albaraka Turk, the Turkish operation of Bahrain's Albaraka lender. (Cihan/Today's Zaman) CIHAN

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Source: Cihan News Agency (Turkey)

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