Step To A Transformation Process From Participation Banks

Digitalisation and sustainability studies come to the fore in participation banks

The Participation Banks Association of Turkey (TKBB) and six participation banks actively continue their activities to develop the participation banking sector which dates back to 37 years ago in our country. While the total asset size of the global interest-free banking sector reached 1.8 trillion dollars in 2020, the Turkish participation banking sector continued to grow in parallel with the world. While participation banks’ total share of assets in the Turkish banking sector was 5.1% in 2012 and 6.3% in 2019, it reached 7.5% as of the second quarter of 2021. The 2025 target of the sector is to acquire an asset size of 1.77 trillion TL with a share of 15%. With the pandemic, it is observed that digitalisation efforts in the sector have accelerated, and the importance of the focus on sustainability issues has increased. Digital banking applications are gaining ground in customer habits by creating awareness, improving customer experience, and increasing operational efficiency. The number of Turkish participation banking digital customers, which was 2.9 million as of the end of the second quarter of 2020, reached 3.6 million by the end of the second quarter of 2021, with a growth of approximately 20%. Digital channels have come to an important position between the way the bank and customers interact, with the increase in transactions.

Participation banks have been providing remote customer acquisition opportunities since May. In this way, a total of 42 thousand remote customer acquisitions were realised between June and October. As stated in the Participation Banking Digital Research Report, the agenda in digitalization efforts is the use of new generation technologies to improve customer experience and increase operational efficiency. On the other hand, security issues are also important. Integrating big data, data analytics, artificial intelligence, machine learning and blockchain technologies into operations allows to respond to customer needs, provide process automation and increase the agility of organisations. It is among the innovative services offered that customers can transfer money without an ATM/ branch, get information about banking products and services with artificial intelligence supported virtual assistants, and view different bank accounts instantly on a single screen.Minimising physical contact during the pandemic

The agenda in digitalizatio efforts is the use of new generation technologies to improve customer experience and increase operational efficiency

period and changes in infrastructure and regulation plays a critical role in developing digital financial literacy. It has become a common goal of institutions to increase their technological and financial knowledge to provide customers with access to financial services through digital channels. The new dynamics brought by the pandemic are seen as a driving force for institutions in actions on sustainability in addition to accelerating digitalisation efforts. In line with sustainable development, it remains on the agenda for participation banks to harmonise their operational processes with the environment and offer products that are Environmental, Social and Governance (ESG) compliant. It is observed that studies in areas such as environmentally friendly projects, sustainability indices, green building studies and sustainable sukuk products are increasing.

Participation banks seem to have stepped into a transformation process in the light of the accelerating digitalisation trend in the participation banking sector and the sustainability topics of increasing importance.With the new financial solutions and applications offered in this direction, it is expected that the participation banking sector will develop and increase its efficiency in the banking sector.

It is observed that studies in areas such as environmentally friendly projects, sustainability indices, green building studies and sustainable sukuk products are increasing

EY Turkey Advisory Services - Senior Manager İrfan Genişol