Fitch: Limited Implications of Asya Case for Turkish Banks

The Turkish banking sector as a whole, and its participation (Islamic) banks in particular, should not be significantly affected by the transfer last Friday of control over Asya Katilim Bankasi to the Savings Deposit Insurance Fund (SDIF), Fitch Ratings says. Asya is a relatively small part of the overall Turkish banking system, with a market share of around 1%, but was the largest participation bank before the onset of its problems in2014.


We consider Turkey's banking sector generally well managed, and we regard the Banking Regulation and Supervision Authority (BRSA) as a reasonably strong regulator. But the BRSA's intervention at Asya could be perceived to have resulted from a political agenda towards the bank and the events surrounding the bank could have a moderate negative impact on investor sentiment towards Turkey and the perceived independence of the BRSA.

The BRSA introduced restrictive measures regarding Asya in September 2014, and took over management of the bank in February 2015. The BRSA's belief that Asya's weak financial condition posed a threat to the financial stability of the banking sector ultimately resulted in last week's transfer of ownership to the SDIF. In 2014, Asya had suffered a 50% outflow of deposits, accompanied by negative public statements by high-ranking government officials about the bank's financial position. But Asya did not default on any of its obligations and managed the period of stress relatively well, before the BRSA takeover.

Controversy about the bank's complex ownership may have contributed to Asya's troubles. Some of the bank's shareholders are allegedly associated with Fetullah Gulen, an exiled cleric politically opposed to the ruling AKP party. The bank's end-2014 financial statements were qualified on the basis of poor disclosure of directors' remuneration and irregularities related to property investments held by a subsidiary, but showed no breach of prudential ratios.

Asya's license remains in place and it continues to operate fully. We believe the SDIF will attempt to identify a buyer for the bank, although discussions regarding Asya's potential sale in August last year did not then result in a transaction. Participation banks represent around 6% of total banking sector assets. Turkey's three state-owned commercial banks, Ziraat, Halk and Vakiflar, are expanding into the participation banking sector through the establishment of specialised subsidiaries. Ziraat's participation banking subsidiary was inaugurated in May.