Time for rebranding Islamic finance

islamic finance brandingTurkey’s ‘participation banking’ holds appeal to spread Islamic finance globally.

Dubai: Discussants on Islamic finance at the ongoing SIBOS 2013 agreed that to be a truly global alternative, there is a need for it to be rebranded to appeal to a wider section of banking and financial customers worldwide.
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source : Gulf news

Islamic bank looks to Turkey’s sukuk

The President of the Islamic Development Bank (IDB) Ahmad Mohamed Al-Madani has urged Turkey to mobilize “sukuk” (Islamic bonds) to facilitate the flow of capital from Arab countries, while also suggesting that Turkey could arrange an investment conference in order to attract Arab capital.

Read more at :
http://www.hurriyetdailynews.com/islamic-bank-looks-to-turkeys-sukuk.aspx?pageID=238&nid=54868&NewsCatID=345

Islamic banking to grow, UniCredit says

Italy’s biggest bank, UniCredit, has called Islamic banks “the fastest growing segment in Turkish banking,” according to Bloomberg.

In Turkey, such banks are known as “participation banks.”

Participation bank Albaraka Türk’s shares were rated “buy” and Asya Katılım Bankası’s “hold” in new coverage at UniCredit. The Italian lender set a price estimate of 4.5 Turkish Liras for Bank Asya and 3.04 liras for Albaraka Türk, a unit of Bahrain-based Albaraka Banking Group, analysts including Ercan Uysal wrote in an e-mailed report Thursday.

The banks are its top picks, UniCredit said.

Between August 2008 and Jan. 8, 2010, the credit volume of Turkish participation banks grew 9.7 percent, according to a Jan. 27 story by business daily Referans. In the same period, the credit volume of private banks contracted 1 percent, while that of public banks expanded 25 percent, a reflection of global concerns about the health of private banking. In the same period, the share of participation banks in overall credit volume rose to 3.9 percent, from 3.8 percent.

Participation banks, which had 148 branches in Turkey at the end of 2002, had 558 branches as of the end of 2009.

In another note, UniCredit rated the Turkish investment bank Türkiye Sınai Kalkınma Bankası, or TSKB, “hold” in new coverage, with a price estimate of 2.12 liras. “With its stable and niche business model, TSKB is an attractive defensive banking play,” it said.

Şekerbank was rated “sell” in new coverage on “low profitability,” UniCredit said.

Investors should also sell shares in Turk Ekonomi Bankası, the Turkish unit of BNP Paribas, UniCredit said. A merger between TEB, as the bank is known, and fellow group unit Fortis Bank may hurt profitability, it added.

source : hurriyat

Bank Asya retains customers’ trust amidst crisis

Bank Asya, the largest participation bank in Turkey and the 29th on the list of the world’s 500 largest financial institutions dealing in Islamic banking products, has managed to maintain the confidence of its customers despite global financial turmoil in 2009.

Operating in the Turkish market for over 13 years, Bank Asya seems to have no doubt about their continued future success under the management of its new board. Speaking to Sunday’s Zaman, the bank’s new general manager, Cemil Özdemir, who recently replaced Ünal Kabaca, said they maintain customer confidence in the market, having increased the amount of loans extended by the bank by 34 percent last year over 2008.

Özdemir said average loan growth in the sector stood at 6.9 percent in 2009 when compared to 2008. “We also experienced 56 percent growth in deposits in 2009 over the previous year,” he said, adding that this was a clear indicator of Bank Asya’s increasing credibility in the market. The bank is traded on the İstanbul Stock Exchange (İMKB) and has offered 51.2 percent of its shares to the public, the highest figure of all publicly traded banks on the exchange.

Recently released Banking Regulation and Supervision Agency (BDDK) figures show that Bank Asya, which operates transparently and shares its business operation records with the public more frequently than other banks, has been the most transparent among the 13 banks traded on the İMKB in terms of “partnership and corporate structure” since the end of 2006. Bank Asya enjoyed 22 percent growth in net profit in 2009 over 2008, Özdemir said, another indicator that the bank displayed a highly productive performance despite adversities affecting the markets. The manager argued that such a fact had above all benefited the non-financial sector, which had problems securing loans during the crisis.

While most banks in Turkey were criticized for remaining indifferent to the non-financial sector’s problems, Bank Asya continued its loan support to customers during the crisis. The bank extended 95 percent of its total deposits in loans in 2009, maintaining a high level of loans disbursed in the market. An exceptional 56 percent increase in deposits over the past year was the major factor for this. “We are committed to continuing our loan support to Turkey’s manufacturing and service industries,” he said.

Along with a successful performance in deposits, profits and loans, the bank also achieved remarkable success when it comes to credit cards. With its DIT card, a prepaid multi-application chip and PIN card combining the power of MasterCard EMV OneSmart features with an integrated municipal toll and transit application, Bank Asya attracted attention in the market. Noting that the number of DIT users is increasing with every passing day, Özdemir said they are working on studies to expand the card’s coverage area. AsyaCard DIT last year received the Best New Credit Card Product Launch award at the Cards & Payments Europe 2009 awards and received the “Best Credit Card Alternative to Cash” award at the Visa Europe Insights ‘09.

Introduced in May 2008, AsyaCard puts toll and transit functions onto no-contact smart cards that can be used at over 300 electronic toll collection system (KGS) points, including the two bridges over the Bosporus in İstanbul, as well as to complete transactions at 109,000 points of sale worldwide.

Bank Asya also participates in corporate social responsibility projects. The bank currently sponsors the Turkish First Division Soccer League, a sponsorship due to end at the end of this season. Özdemir said they expect to renew their sponsorship deal, recalling that the agreement has helped increase the bank’s popularity.

Noting that they expect 20 percent growth in 2010 over 2009, Özdemir said Bank Asya plans to open 25 new offices throughout Turkey and hire 400 new staff members. “We believe the Turkish banking industry still has huge growth potential,” he said, emphasizing that an İstanbul Finance Center (İFM) project, a government-backed strategy to turn the metropolis into a hub for financial activities in the region, would infuse new life into the Turkish banking industry. According to Özdemir, the project would introduce remarkable opportunities for banks.

“Most banks are planning to launch new investments this year that they had to suspend in 2009 due to the crisis. This will surely lead to an increase in the number of new bank offices and eventually contribute to employment,” he said. Addressing the view that banks are expected to see less profitability in business this year as compared to the past few years, he says this is pushing banks to adopt new policies to reduce costs as well as increase productivity.

Noting that the bank expects to increase its popularity with projected office openings in every single province, Özdemir said they will also concentrate more on expanding outside the country. The bank is currently operating in the interest-free banking sector throughout Africa following a strategic cooperation agreement with the Islamic Corporation for the Development of the Private Sector (ICD), a subsidiary of the Islamic Development Bank (IDB), signed in October of last year. Under the deal, Bank Asya acquired a 40 percent stake in Senegal-based Tamweel Africa Holding SA, owned by the ICD.

Political tension hits banking industry first

Making mention of recently increased political tension in Turkey, Bank Asya’s Özdemir asserted that further similar problems would first harm the banking sector. “Increased political tension, particularly a rumored closure case against the ruling Justice and Development Party [AK Party], would turn balances upside down in the economy,” he said. According to Özdemir, such an atmosphere would lead to unprecedented increases in interest rates, while banks would call in a large number of loans from the market. As regards anticipations for early general elections, he said the banking industry expects elections to be held on time.

The detention of retired and active duty generals and colonels in an investigation of the Cage and Sledgehammer coup plans along with rumors from the judiciary of another closure case against the AK Party recently led to fears in the market that political instability would spill into the economy. Hit by the aftereffects of political tension, markets entered a downward trend through the end of last month, with the İMKB losing a months-high 5.5 percent on investor reaction to news on Feb. 24. The Turkish lira also lost value against foreign currencies.

As regards recent increases in Turkey’s credit rating by some of the world’s leading agencies, he said they expect to see further upgrades, “provided the economy continues sailing in safe waters.”

source : todayszaman

Turkey: Islamic Finance Transactions in Turkey

The term “Islamic finance” refers to a system of financing or financial activity that is consistent with Islamic rules and principles. The model outlined under the Islamic finance is generally based on two main pillars, namely the sharing of profit and loss; and the prohibition of charging interest. There are several modes of financing currently being used in Islamic finance practice, certain of which can be considered as similar to conventional banking products. However, the main rule dominating the financial instruments in Islamic finance is the prohibition of recovering interest, which gives rise to the essential mode of financing based on the deferred sale of a commodity, namely “Murabaha”.

Murabaha, which was originally a contract of sale in which a commodity is sold on profit, has been modified for application in the financial sector and has thereby become the single most popular technique of financing amongst Islamic banks all over the world. A Murabaha transaction is completed in two stages. In the first stage, the client requests the financial institution to undertake a Murabaha transaction and promises to buy the commodity specified by him if the bank acquires the same commodity. In the second stage, the client purchases the good acquired by the bank on a deferred payment basis and agrees to a payment schedule. In sum, the Murabaha transaction consists of two sales contracts, one through which the bank acquires the commodity, and the other through which it sells it to the client.

The Murabaha form of financing is widely used by Islamic banks to satisfy various kinds of financing requirements. It is used to provide financing in a variety of diverse sectors (e.g. in consumer finance, for the purchase of consumer durables such as cars and household appliances; in real estate, to provide housing finance; and in the production sector, to finance the purchase of machinery, equipment and raw material).

Islamic Financing and its Aspects in the Turkish Market

 

Turkey has been institutionally utilizing Islamic finance techniques since the late 1980s through financial institutions known as “Special Finance Houses” (Özel Finans Kurumu), which became the “Participation Banks” (Katılım Bankası) with the enactment of the Banking Act No. 5411 (“Banking Act”) on 1 November 2005. There are currently four participation banks operating in Turkey, whose activities are under the supervision of the Banking Regulation and Supervision Agency. Participation banks are authorized by the Banking Act to collect deposit funds from the public under the “profit-and-loss participation accounts” and the “special current accounts”. The profit-and-loss accounts can be considered as a version of the Islamic finance instrument known as the “Mudaraba”, where the bank utilizes the funds deposited by account holders and that are accumulated in a pool for specific business activities. Any profits earned are shared between the account holder and the bank, in proportion to an agreed ratio.

Participation banks mainly offer two types of financing. The first is Murabaha, under which the funds are made available to companies in need of capital. The other is financial leasing, with terms similar to those offered by other leasing companies.

Apart from the institutionalized Islamic finance activities described above, a large number of syndicated loans in the form of Murabaha were made available to major Turkish companies such as Turkcell, Petrol Ofisi and Vestel in recent years. Under these transactions, the companies mentioned were provided with syndicated loans in the Murabaha form made available by credit consortiums consisting of financial institutions from the Persian Gulf region, led by the major actors of the global financial market. Considering that rising oil prices cause considerable capital accumulation in the Gulf Region, the Murabaha syndications can be considered as serious financing alternatives for Turkish companies.