IFN Correspondent Report: Türkiye

Steady progress towards 2025 strategic goals

In 2023, a significant part of the forecasts for the global economy were pessimistic due to the ongoing Russian-Ukrainian crisis, energy supply scenarios, the inability to stop the inflationary environment and the tightening financial conditions. However economic activity both in Türkiye and the world has taken a stronger-than-expected path..Türkiyeentered into an important period with monetary policies and activities that will ensure development. Participation banks (PBs) has also actively supported economic development as an ecosystem memberwith its wide-range and sophisticated products and services by financing the real economy via diversified customer portfolios So, demand for participation banking is gradually increasing with its potential. this was crowned with joining of two new digital PBs to the sector in Türkiye at the end of 2023 and a new full-fledged PB started its operation in the begining of 2024.

Participation banking has gained significant momentum

As of February 2023, the number of PBs increased from 6 to 9 by the end of the same year and showed 50% growth. 2023 year-end figures show that the total number of domestic and international branches increased by 5.8% compared to the same period last year, reaching 1,459. The number of branches of PBsconstitutes more than 13% of the total branch network of the banking sector and continues to increase day by day.

Total asset size of PBs also, grew by 72.2% compared to the end of the previous year and reached TRY2 trillion (US$69 billion). recorded growth above the traditional banking sector.

In this respect, collected funds of the 9 PB soperating in Türkiye, which were TRY891 billion (US$47 million) at the end of 2023, increased by 70.2% to TRY1.5 trillion (US$51 billion) at the end of 2022.

When we look at the end of 2022, the net profit of PBs grew by 79.3% from TRY29 billion (US$1.5 billion) at the end of 2022 to TRY53 billion (US$1.8 billion) at the end of 2023. Total shareholders' equity increased by 70.6% to TRY143 billion (US$4.8 billion).

Great support for SMEs from the participation finance ecosystem

Following a policy in line with the goals of sustainable growth and expansion of the Turkish economy on a solid base, participation banking continued to provide financing to SMEs in 2023.

In March 2023, Katılım Finans Kefalet A.Ş. (Islamic Credit Guarantee Fund/KFK) is established in partnership with the Turkish Ministry of Treasury and Finance (HMB) and six PBs with the support of TKBB KFK provides access to finance for SMEenterprises within the framework of Participation Finance principles, and enable themto get competitive advantage in the sector.

By the end of 2023, the total number of SME customers of PBswas 165,499. Total cash and non-cash SME loans increased by 44% from TRY 295 billion (US$ 15 billion) in 2022 to TRY523 billion (US$ 18 billion) at the end of 2023. As a result of that dedicated concentration for the SME financing, the total funds of PB sextended to SMEs is around 43%.

Sukuk financing in participation banking

Turkish PBsalso play crucial role in Sukuk market. Sukuk issuances, exceeded market expectations in 2023 and recorded a rapid acceleration. PBsissued TRY 391 billion worth of Sukuk between 2010 and 2023 and raised funds by issuing approximately US$ 5 billion and MYR 2 billion in foreign currency.

The volume of Sukuk transactions made by the HMB has made significant contributions to attracting international investors and reached TRY 294 billion between 2012 and 2023. In addition, HMB supported national economy by successfully issuing US$3 billion, EUR4 billion and 233 tons of gold-based Sukuk.