Interest-free Turkish bank profits jump on yield initiatives

The past year has been particularly remarkable for Turkey’s interest-free banking sector, although the crowdfunding sector has already made rapid progress around the world. In 2020, Turkish interest-free banks’ net profit jumped 52.5% to 3.7 billion Turkish liras ($ 504 million) from the previous year.

The jump in profits shows that the measures taken by Turkey, a relatively new player, to stimulate the growth of crowdfunding are paying off. The sector’s share has also gradually increased to 7.2% last year, down from less than 5% just five years ago.

In recent years, the country’s banking participation has grown at a faster rate than the country’s entire banking sector.

The total assets of the six interest-free banks operating in Turkey, namely Kuveyt Türk, Albaraka Türk, Türkiye Finans, Ziraat Katılım, Vakıf Katılım and Emlak Katılım, reached TL 437 billion in 2020, an increase of 53.7 billion in year-over-year. %.

This figure has more than tripled in the past five years, while the total assets of the The Turkish banking sector as a whole doubled in the same period, reaching TL 6.1 trillion.

Speaking exclusively to Anadolu (AA) agency, Tarık Akın, head of the Presidency’s new participation finance department, said the success was due to an effective communication strategy and banks working more competitive, strengthening the diversity of products and services.

” The government strategic steps, in particular the creation of state-run participatory 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 TL 321.4 billion.

Loans issued by banks totaled TL 222.4 billion last year compared to TL 136.2 billion the previous year.

Among the six participating banks, Kuveyt Türk recorded the largest net profits with TL 1.5 billion, followed by state-owned company Vakıf Katılım, with net profits reaching over TL 667 billion last year.

The net profits of private lender Türkiye Finans and state lender Ziraat Katılım amounted to TL 657.7 million and TL 641.3 million respectively.

Emlak Katılım recorded net profit of TL 89.9 million, while Albaraka Türk recorded a loss of TL 109.1 million last year.

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.

Growing market share

Stating that the Istanbul Financial Center (IFC), which is currently under construction, will focus on the sustainable growth of interest-free finance and crowdfunding, which are based on Islamic principles, Akın said it is about one of the two key elements of the project, with fintech. The fundamental principles of this particular bank are profit and loss sharing, and the prohibition of the collection and payment of interest by lenders and investors.

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 – Akın said the decision was taken to meet Turkey’s centenary goals in 2023.

“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 interest-free financing and developing strategies on the ground.

It also aims to strengthen cooperation between public institutions, the private sector, universities and non-governmental organizations (NGOs) to improve crowdfunding.

Meanwhile, the global rating agency Moody’s has forecast that the banking assets of participation in Turkey will double over the next five years as government initiatives drive 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 in line with international standards, as announced in the package.