Development and Future of
Islamic Banking in Turkey
Abdullah Çelik
CEO, Bank Asya
Agenda
• Islamic Finance in the World
– Global Existence
– Development of Industry
– Interest-Free Banking in the World
• Islamic Finance in Turkey
–
–
–
–
Interest-Free Banking: Turkish Experience
Milestones in Turkey
Volume of Turkish Banking Sector
Participation Banks’ Market Share
Global Existence
• Increasing market presence
– Growing at 15 to 20% per annum
– Size estimated over USD 1 trillion globally
– New markets welcoming Islamic banks and products
• Market-driven proposition
–
–
–
–
–
Retail demand has historically the backbone of the industry
Sensitivities to principles more visible on retail deposit
But corporates and even sovereigns showed appetite for the products
Market-driven product development proved to be successful
Self-regulating organizations accompanied global Islamic banking boom
• Global scale
– More than 250 Islamic banks worldwide operating in over 75 countries
– A wide range of interest varying from U.K. to Singapore
– Widening customer base including sovereigns to top global corporates to tap
Islamic finance markets
Development of industry
•
•
Development of theoretical framework
First attempts to structure Islamic banking products
•
First institutions emerged to test the market
•
•
Islamic Development Bank (1974) and DIB
One country-one bank setup
•
•
•
Advancement of Islamic products
Turkish market to welcome Islamic banking
Full “Islamization” of banking in some countries (Pakistan, Sudan
etc.)
•
•
Entry of global institutions & Islamic windows
increasing global coverage of Islamic banking
•
•
•
Islamic banks achieving strong and stable growth globally,
New products in international markets
Sukuk market to boom
Interest-free Banking in the World
Asset size of Interest-free Banking system
(billion USD)
1400
2010
1200
1085
1200
991
1000
52
350
574
40
50
300
140
195
0
30
25
22
150
100
400
50
250
200
600
200
60
300
791
800
400
20
11
369
7
181
209
119
79
20
5.5
57
39
25 4
Source: The Banker, IIFM, Ernst & Young & Zawya
2010
2009
2008
2007
2006
2005
2000
1995
0
Size (bn USD)
Share in local banking (%)
10
0
Interest Free Banking: Turkish Experience
•
•
•
•
Although interest-free banking was introduced as integral part of the Turkish financial
system, it was in 1999, and after the new Banking Act no. 4491, that Special Finance
Institutions were officially integrated into the Banking Law. Under the Banking Law,
these institutions were brought under the same umbrella of regulations covering
conventional banks.
The Banking Act 4491 had taken Special Finance Institutions under the state guarantee
scheme with the so-called guarantee fund, alongside conventional banks, where
‘current’ and ‘profit/loss sharing’ participation accounts (local and foreign currency
denominated) of up to TL50,000 and held by individual customers were brought under
state guarantee.
The regulatory framework for Special Finance Institutions was strengthened in the
following years. When the new Banking Law (no. 5411) came into effect in November
2005, the Special Finance Institutions’ guarantee fund, (established in 2001) was
merged into the Savings Deposits Insurance Fund (SDIF). Of equal importance, ‘Special
Finance Institutions’ were renamed ‘Participation Banks’, with a more concrete
definition of their interest-free characteristics with the introduction of new Banking
Law.
Currently 4 participation banks are operating in Turkey: Albaraka Türk, Bank Asya,
Kuveyt Türk and Türkiye Finans
Milestones in Turkey
-Establishment of Special
Finance House Association
Regulation with decree in
force of law 83/7506.
(Establishment of Special
Finance Houses )
1983
-Special Finance House
Security Fund came into effect
1999
2001
Transfer of Special
Finance House Security
Fund to Saving Deposit
and Insurance Fund
2005
Transformation to
Participation Banks
from Special Finance
Houses
Inclusion within
the Banking Law
7
Volume of Turkish Banking Sector
December 2011
Participation
Banks
Deposit
Banks
# of Institutions
4
31
Development &
Investment
Banks
13
bn TRY
56.1
1,119.90
41.6
1,217.70
(%)
4.6
92
3.4
100
bn TRY
39.2
656
-
684
(%)
5.6
94.4
-
100
bn TRY
41,0
635,5
23,6
661
(%)
5.8
90.8
3.4
100
Assets
Deposits
Loans
Total
48
Source: BRSA reports
8
Growth Comparison (2005-2011)
Participation Banks
CAGR %
Participation Banks
Banking Sector
CAGR %
Banking Sector
Assets
33.5
Assets
20.1
Deposits
29.6
Deposits
18.6
Credits
33.0
Credits
27.1
Source: BRSA
9
Credit-to-Deposit Ratio (%)
Participation Banks’ Market Share
Total Assets - Market Share (%)
Participation Banks’ Market Share
Funds Collected (Deposit)
Market Share (%)
Credit Market Share (%)
Branch and Staff Size
800
16,000
685
700
607
600
530
422
500
400
355
300
200
100
255
188
290
11,022
560
14,000
13,851
12,000
12,703
11,802
10,000
9,215
8,000
7,114
6,000
5,740
4,000
4,789
3,520
2,000
0
0
2003
2004
2005
2006
Source: The Participation Banks Association of Turkey
2007
Branches
2008
2009
2010
2011
Staff
13
2023 Vision
Turkish State 2023 Plan
Participation Banking
• GDP of 2 trillion USD
• Among most developed top
ten countries of the world
• Istanbul as a financial center
• Istanbul as an Islamic
Financial Center
Action Plan
Financial
Infrastructure
Image
Action
Plan
Human
Development
Regulatory
Framework
Shariah-compliant Banks and
Assets in Muslim Countries - 2011
(in billions of USD 2011)
2023 Market Potential for Islamic Finance
- $8.602 billion USD
What if countries with large populations achieve the average use of
Islamic finance represented by Malaysia?
Participation Banking in 2023
3,900
4000
3500
%15
3000
2500
2000
%5
675
1500
1000
581
31
500
0
Milyar USD
2011
Total Assets of Participation Banking
2023
Total Assets of Banking Sector
Summary
• Globally, the Islamic Banking sector is expanding fast. Although the Middle
East and Malaysia remain by far the biggest markets in the world, other
regions and countries are starting to look at introducing this fast-growing
asset class to their economies.
• Turkish participation banks has a proven track record, with new products
and markets the pace of growth will increase.
• The key to success is “legislation”