Steady momentum of successful performance by Turkish participation banking sector

The second quarter of 2021 was successful for participation banks, as they outperformed the sector in terms of growth. While the total asset size of participation banking grew by 15% compared with the previous year, there was an increase of 17% in funds utilized and 16% in funds collected. Net profit increased by 21% to TRY1.99 billion (US$234.31 million), over the average of the banking sector. Participation banks actively supported SMEs during COVID-19; cash loans allocated to SMEs by participation banks in the second quarter of 2021 were around 31%. 

In the last five years, the share of participation banks in the banking sector has increased from 5% to 7.5%

As the main representative of the Turkish participation banks, the Participation Banks Association of Turkey (TKBB) also announced its dedication to apply strategic actions as mentioned in the TKBB Strategy Update Report (2021–25) with project management office leading the sector to get stronger and take firm steps toward its goals. The establishment of state-owned banks played a significant role in increasing the asset growth rate of the sector. In the last five years, the share of participation banks in the banking sector has increased from 5% to 7.5%. As the importance of digital technologies came to the fore with the COVİD-19 pandemic, innovative solutions implemented have strengthened the immunity of the sector against similar crises that may arise in the future. Turkish participation banks also carried the goal of maximizing customer experience in digital channels as well as physical channels. Turkey’s finance sector, including participation banks, has achieved great success in this change of trajectory, which came to the fore suddenly, thanks to the strong and upto-date infrastructure it has in this regard as a result of the large investments it has made over the years. In this process, where there was no service interruption, banking turned into a mobile service with remote access to a great extent, e-commerce gained great importance and significant transaction volume increases were experienced. As participation banks, they especially focus on digitalization and creating strategies in line with the vision of growth with technology. On the other hand, the remote customer acquisition period in Turkey that started on the 1st May 2021 has been the most important innovation during the pandemic period. As of July 2021, all participation banks provide that innovative service. 

Between the period of May 2021 and July 2021, which was the beginning of the application, a total of 18,586 customers were acquired by participation banks. In the aggregated data, the number of applications for remote customer acquisition after the 13th May 2021 was also reported to the TKBB by the banks.

From this date to the end of July; the total number of applications was 34,791 and the number of customer acquisitions was 14,428. The success rate was 41.4%.

In this respect, the draft ‘Regulation on the Operating Principles of Digital Banks and Service Model Banking’ was published by the Banking Regulation and Supervision Agency (BRSA) on the 19th August 2021. 

In order to facilitate this, the aim is to determine the operating principles of branchless banks that provide service only through digital channels and the conditions for offering banking services as a service model to businesses and innovative enterprises. 

Table 1: Main financial indicators of participation banking sector as of June 2021