Turkish Islamic banking sector powers through with solid performance and strong backing from authorities
Turkey’s participation banking sector came out of an especially difficult year with an increase in its market share of the total banking sector’s assets to 7.2% in 2020 from 6.3% recorded in 2019. This solid performance is underpinned by strong support from regulators, which continues this year, given Islamic banking’s strategic importance to authorities, Fitch Ratings affirmed. Total assets of the country’s six participation banks — Kuveyt Turk Participation Bank Turk, Albaraka Türk Katılım Bankası A.Ş, Türkiye Finans Katılım Bankası, Ziraat Katılım, Vakıf Katılım and Emlak Katılım Bankası — also recorded an increase of 53.7% year-on-year as at the end of 2020.
Compared to conventional Lenders, Islamıc banks in Turkey are 82% deposit-funded and less reliant on foreign currency wholesale funding, said the rating agency, predicting further capital increases to support the growth of state-owned Islamic banks in the medium term. The Turkish Islamic banking industry is set to grow even further in the coming years, with a target of a 15% market share by 2023, and particularly with the recent establishment of dedicated divisions in the central bank the Finance Office of the Presidency, this is likely to happen.
Speaking to IFN, Omer Faruk Tekdogan from the Ministry of Treasury and Finance explained that the Participating Banking Division of the central bank will work with the Islamic banks to contribute to the development of the sector and financial stability, while the Participation Finance Department in the Office of the Presidency focuses on monitoring, reporting and coordinating the Islamic financial sector’s activities. “The role of the department is similar to the National Committee for Sharia Economics and Finance in Indonesia, which is established to maintain harmony and coorfination among public bodies in the field of economics and finance,” Omer Faruk said.
Meanwhile, an economic reform pakage was annonced in March 2021, outlining the country’s current work on a uniform legilation fort he Islamic finance sector, and the Istanbul Finance Center, which has a special focus on developing the sustainable growth of participation finance in Turkey, is currently under construction and set to open in 2022.