Turkey’s Measures Boost Interest-Free Bank Profits in 2020
Even during the rapid development of the interest-free banking sector in Turkey and around the world, the last year was particularly noteworthy, with the net profits of Turkish participating banks surging 52.5% to 3.7 billion Turkish liras ( $ 504 million) compared to the previous year.
Turkey’s steps to boost crowdfunding growth are paying off, with the industry’s share gradually increasing to 7.2 percent last year, down from less than 5 percent just five years ago.
In recent years, Turkey’s participation in the banking sector has grown at a faster rate than the country’s entire banking sector.
The total assets of the six participating banks operating in Turkey – Kuveyt Turk, Albaraka Turk, Turkiye Finans, Ziraat Katilim, Vakif Katilim and Emlak Katilim – reached 437 billion Turkish Liras ($ 59.3 billion) in 2020, an increase year-on-year by 53.7%.
The figure has more than tripled in the past five years, while the total assets of the Turkish banking sector have doubled in the same period, reaching 6,100 billion Turkish liras ($ 826.5 billion).
Speaking exclusively to Anadolu agency, Tarik Akin, head of the Presidency’s new participation finance department, said banks working more competitively, enhancing the diversity of products and services and following a communication strategy effective have led to this success.
“Government policy measures, especially the creation of state-run participation banks and the implementation of new regulations, have also contributed significantly to their growing share,” he said.
He pointed out that although it has not reached the desired level and taken its rightful place, crowdfunding has gained a lot of ground.
Deposits, loans, profits
Deposits in participating banks also increased 49% on an annual basis to reach 321.4 billion Turkish liras ($ 43.5 billion).
Loans issued by banks totaled 222.4 billion Turkish liras ($ 30.2 billion) last year compared to 136.2 billion pounds ($ 22.9 billion) the previous year.
Among the six participating banks, Kuveyt Turk recorded the largest net profits with 1.5 billion Turkish liras ($ 297 million), followed by state-owned company Vakif Katilim as its net profits reached last year over 667 billion Turkish liras ($ 95 million).
The net profits of private lender Turkiye Finans and state lender Ziraat Katilim totaled 657.7 million Turkish liras ($ 93.7 million) and 641.3 million Turkish lira ($ 91.4 million), respectively.
Emlak Katilim recorded net profits of 89.9 million Turkish lira ($ 12.8 million), while Albaraka Turk last year recorded a loss of 109.1 million Turkish lira (15.6 million of dollars).
The ratio of regulatory capital to risk-weighted assets – an important indicator for determining minimum lender capital requirements – of interest-free banks stood at 17.83% at end-2020.
The total number of domestic and international branches of these banks at the end of last year was 1,252 with 16,987 employees.
Istanbul Finance Center, a growing market share
Stating that the Istanbul financial center, which is currently under construction, will focus on the sustainable growth of crowdfunding, Akin said that this is one of the two key elements of the project, along with fintech.
The financial center project, which is expected to be completed in early 2022 in Turkey’s financial capital, is expected to serve as a global hub for financial systems and non-bank financial methods.
Referring to the establishment in February of the finance department of participation within the presidential finance office – the department he heads – Akin said the decision was made to meet targets for 2023, Turkey’s centenary.
“This department will create the financing strategy for Turkey’s participation with a holistic approach besides being the main coordinating body,” he said.
“Thus, it aims to achieve the objective of increasing the market share of crowdfunding to 15% by 2023.”
The department will focus on raising awareness of crowdfunding and developing strategies on the ground.
It also aims to strengthen cooperation between public institutions, the private sector, universities and NGOs to improve Islamic finance.
Meanwhile, global rating agency Moody’s predicted that Islamic banking assets in Turkey would double over the next five years, as government initiatives boost the industry’s growth.
As part of a package of historic economic reforms announced on March 16, Turkey is preparing uniform legislation that will accelerate the development of the crowdfunding sector.
The country will form a crowdfunding arbitration mechanism to international standards, as announced in the package.