Ziraat Katılım outpaces 13 banks 5 months after its founding

Osman Arslan, the general manager of Turkey's state-run participation bank, Ziraat Katılım, said the bank outpaced 13 banks in the sector within the first five months of its founding. He added that the bank now has 16 branches, a fund of TL 950 million ($328.5 million) and a credit of TL 1 billion. "We estimate that the bank's balance sheet will reach TL 30 billion, and we will be a medium-size bank by the end of 2018," he said. In an exclusive interview with Daily Sabah, Arslan explained the achievements and objectives of the newly established participation bank.


Osman Arslan (L) and Daily Sabah's Dilek Güngör

Daily Sabah: Are the raised funds (deposits) and credit size compatible with your objectives?

Osman Arslan: With the increase in the number of branches, fund inflows have begun to accelerate. We want to contribute to the sector and expand it, rather than having a share in the existing participation banking sector. A total of 70 percent of our customers who open bank accounts come from conventional banks. The raised funds have reached TL 950 million. The total non-cash and cash fund disbursement volume has reached around TL 1 billion - TL 200 million of which is non-cash fund disbursement. The construction, iron and steel, food, agriculture, textiles, service, mining and trade sectors stand out in terms of distribution by sectors. The bank's balance sheet has reached TL 1.7 billion, which has allowed us to outperform 13 banks in Turkey's banking sector. We are moving toward our target of a balance sheet of TL 2.5 billion in the first year. We estimate that the bank's balance sheet will reach TL 30 billion by 2018. That is to say, we will have become a medium-size bank by the end of 2018.

DS: What is the current number of branches?

OA: The bank opened on May 29, 2015. We want to have 20, 50, 100, 170 and 500 branches by the end of 2015, 2016, 2017, 2018 and 2023, respectively. A total of 16 branches - six in Istanbul, three in Ankara, two in Konya and one each in Bursa, Gaziantep, Diyarbakır, Çorum and Aksaray- have opened since it was founded, while the number of staff has reached 410. We will open two additional branches in Istanbul and one each in Adana, Kayseri and Ankara by the end of the year. Thus, with a total of 21 branches, we will have surpassed our objective to open 20 branches by the end of the year. We will have covered an area that represents 80 percent of Turkey's gross domestic product (GDP) with 50 branches by the end of 2016.

DS: Did Ziraat Bank's brand value have an impact on your success?

We feel the power of the Ziraat Finance Group behind us. Ziraat Bank's brand recognition instills a high level of confidence in us. We feel this confidence to the core while doing business with our clients. There are clients who want to work with us although they have not yet been acquainted with a participation bank; this pleases us. The fact that Ziraat is a state-run participation bank drives up customers' confidence in us.

DS: How big of a share do you aim to have in the participation banking sector?

As stated in Turkey's Participation Banking Strategy Paper, the participation banking sector aims to reach a size of $300 billion by 2025. We want to have a 20 percent share in this. Ziraat is the last bank to have entered the participation banking sector. Although the average period around the world needed to establish a bank is 18 months, we completed this process in six months thanks to vigorous efforts. We have progressed in line with our objectives up to now, and have undergone a healthy establishment process. From now on, we will increase our influence and share in the market by strengthening the bank's infrastructure and distribution channels. We will not give up stable, cautious and healthy growth.

DS: Did a state-run bank's involvement in the participation banking sector worry other participation banks?

We did not feel that they felt worry about the deterioration of competitiveness, since we aimed to contribute to the sector without taking a share in it. On the contrary, we know from the statements of sector representatives that they support a public bank's involvement in the participation banking sector. Our priority is to reach out to the segments that have not yet found an opportunity to be acquainted with the participation banking. The world has a large volume of funds that are sensitive to participation banking. One of our goals is to attract more of such funds to Turkey.

DS: How does your credit evaluation and finalization process operate?

The company evaluation system enables us to conduct risk assessments of the creditworthiness of firms based on the results of measurement criteria. In terms of the evaluation of credit demands, we have a system that includes the best practices in the world and reflects corporate risk perceptions. Provided that all required credentials are submitted, we try to finalize the financing demands of our corporate firms in two weeks and of our individual clients on the same day as application.

DS: Did you prepare new products?

We want to be an influential participation bank in terms of project financing. We will provide project financing for all sectors, including agriculture. The experiences we gained from Ziraat Bank and the agricultural production cycle show us that participation banking is suitable for this sector in terms of potential. We also aim to make a difference in products that are based on profit-loss participation and have not yet reached their full potential in Turkey despite being widely used in the world. We will develop products based on an investment partnership model, and we intend to expand our product range for individual clients. We also plan to offer investment opportunities to small investors by using lease certificates and different capital market instruments.

Ziraat Katılım already meets with Gulf investors

DS: Do you plan to export sukuks [an Islamic financial instrument that does not accrue interest]?

OA: Before opening, Ziraat Katılım held an introductory road show in April. We visited 30 leading investors from the Gulf region and Far East in their own countries. Actually, this was a meeting of acquaintances with potential investors in case of possible sukuk exports. We held very positive meetings; if circumstances allow, we plan to export dollar-denominated sukuks in the second half of 2016.

'We aim to reach out to all walks of life'

OA: As Ziraat Katılım, we attribute great importance to having customers from all social segments. We are aware that we need to explain participation banking in a meaningful and correct way. The participation banking is a system that is based on supporting the real economy along with production. It is more reserved and more resistant to sharp price fluctuations. We aim to join hands with the real sector based on profit-loss participation and to grow together in the long run.

DS: How did the brand promise used in your advertisements emerge?

OA: As you know, the bank's brand promise is "the more you share, the more you have." Sharing is the nature of participation banking; the participation banking system is based on sharing profits and losses. As a participation bank, we started out to share more with our customers, particularly the products and services we offer. We emphasize such values in the advertisements that were recently aired on television channels. We receive positive feedback in this regard from all segments of society as well.

DS: Will you establish a takaful (Islamic insurance) company?

OA: A sub-structure has been created in our affiliated insurance company, Ziraat Sigorta. After achieving a certain customer volume and size in the future, we aim to establish a takaful company with the object to evaluate our potential in this area.

'We will not repeat the existing practices'

Ziraat Bank General Manager Hüseyin Aydın said the Ziraat Finance Group expanded its financial services chain further by adding a participation bank to the group's subsidiaries, which operate in the fields of leasing, elemental insurance, private pensions, brokerage services, investment banking, portfolio management and technology. Underlining that Ziraat Katılım entered the sector to grow the existing participation banking market, not to have a share in the already limited market, Aydın said the bank aims to introduce new business models to the sector rather than repeat existing practices. The bank will progress by diversifying its initially corporate-based strategy over time.

"With our product and service range, we aim to increase demand for participation banking," Aydın said, adding that one of the strategic goals of the bank is to improve its integration into the international participation banking sector and gain better access to such markets. Stressing that participation banking will help the financial sector spread, boost its product diversity and enable more people to benefit from financial services, Aydın said: "We define participation banking not only as a demand of interest-sensitive segments but as the increase of financial products and services diversity, which will help both conventional and participation banking develop. The share of participation banking continuously increases in global financial markets. The current global crisis indicates that conventional banking needs to learn lessons from participation banking on topics such as the true evaluation of risk-capital relation."