Turkish Bank Asya has recently come under intense scrutiny through government investigations. Though the bank continues to deny all allegations, evidence is growing that the bank’s books may not all be in “the black.”
Turkish President Tayyip Erdoğan recently convened the country’s National Security Council in a record-breaking ten and a half hour session. The meeting ended with a continuing series of investigations and government actions targeting Bank Asya. Associated with the Fetullah Gülen Movement (FGM), the bank has been under a great deal of scrutiny following Turkish government reviews of recommendations from the President that the FGM should be officially registered as an ‘internal enemy’.
Though there have been no official comments on FGM’s status, Erdoğan’s administration has been carrying out a campaign to eliminate perceived FGM movement within Turkey following a major scandal that broke in December 2013. The scandal implicated then-Prime Minister Erdoğan’s cabinet on charges of corruption, and the administration has reacted by purging hundreds of law enforcement officials and other state employees suspected of having ties to the movement.
But what does this have to do with the bank? Bank Asya is one of the country’s top ten largest banks with nearly 300 branches and controls $14 billion in assets as of 2011. Yet, despite a great deal of its growth coming over the past decade of AKP rule, it was started through investments of $1 million raised in 1996 by FGM members, which has caught Erdoğan’s eye.
Will Asya assets be transferred to state banks?
Recent events have pushed Asya into a rather uncomfortable position. Stocks from Bank Asya was banned from trading on the Borsa Istanbul for one month between August 14th and September 15th 2014, while the Turkish Capital Markets Board banned an Asya sale of 140 million lira worth of debt.
The government claimed that the failed sale was a result of uncertainty over bank ownership following now-annulled negotiations on a purchase of a strategic stake in the company and exclusive partnership negotiations with the Qatar Islamic Bank. Deposits in the bank declined by almost 50 percent since the beginning of the year as state institutions withdrew their deposits.
By mid-September, Bank Asya had lost half of its market value and it announced in early November that more than 40 of its branches would be closed on Istanbul’s European side and in Ankara. Net losses of $133 million were posted for the third quarter of 2014, which in turn allowed state investigations to claim that the bank was involved in a variety of dubious schemes to protect the financial activities of clients tied to the FGM.
Despite Bank Asya’s claims that its capital adequacy ratio (or the measurement of a bank’s credit risk exposure) is 14.3 percent, the government claims that 25 percent of Bank Asya’s loans can be classified as non-performing.
With legislation recently introduced in Turkey’s parliament that has expanded the power of the country’s Savings Deposit Insurance Fund, the government now has the legal backing to take over and transfer the assets of other banks into state-run institutions. This has in turn fueled speculation that Bank Asya assets could be transferred to state banks.
Despite the uncertain fate of Bank Asya, Islamic Finance has continued to expand its presence in the Turkish economy. Turkey’s largest state-run bank, Ziraat, has announced that it will open an Islamic Finance division with $300 million in capital provided by the Treasury. Other state banks are expected to follow suit.
Still, not all members of the government seem to be on board with the investigation into Asya. Opposition politicians in Turkey’s Parliament recently requested that the country’s Capital Markets Board investigate the decision to ban the bank’s shares from being traded after a report in the Turkish press appeared that the TiBI had requested to be exempt from some Capital Markets Board regulations in its decisions regarding Bank Asya shares.
Whatever the case, Turkey’s recent actions targeting the bank have raised concerns across Europe – the European Union released a recent “Progress Report” on Turkey’s path to European Union membership criticizing recent actions by the Turkish state without naming the bank itself.
