S&P forecasts 10 pct of Turkish banking will be Islamic in 2025

DAILY SABAH
ISTANBUL
Published 22.06.2016 22:18

A recent report examining new developments in Islamic finance in Turkey by the U.S.-based credit rating agency Standard & Poor's (S&P) said it expects that the Islamic (participation) banking sector, which is steadily gaining momentum in Turkey, will increase its share of the Turkish banking sector from its current 5 percent to over 10 percent in 2025.

The S&P report underlined that it expects the credit growth of Islamic banks to be faster than that of other banks of similar characteristics. The report noted recent developments in the sector as well, as government support will considerably support the development of Islamic banking, and that these factors will play an important role in the growth of the Islamic banking sector, which has mostly grown so far due to institutions with Gulf-based capital.

S&P also reiterated that the entrance of new Islamic banks in the sector, such as Ziraat Participation and Vakıf Participation, marks a turning point for the development process of Islamic banking in Turkey. S&P forecasts a remarkable increase over the next few years in Sukuk exports carried out by Islamic banks operating in Turkey as well as those supported by the government.

Despite all of these positive developments in favor of Islamic banking, S&P said the growth rate of Islamic banks would be affected by the slowdown in the overall banking sector, expected between 2016 and 2019.

Leading figures in the sector expect even higher growth rates. Osman Çelik, the general manager of Turkey's Islamic lender Türkiye Finans Katılım Bankası, said the strategy of Islamic banks is to increase the share of participation banks in the banking sector from 5 percent to 15 percent over the next 10 years. In remarks in February prior to the opening of Vakıfbank Participation, Çelik stressed participation banking will become more of an issue in the upcoming period and said Istanbul will become the center of interest-free finance with state-run banks entering participation banking. He added that the involvement of state-run banks in the sector is likely to further boost the recognition and visibility of interest-free financing in Turkey.

According to an official report released in January by Fitch, the U.S.-based credit rating agency, the number of loans granted by participating banks in Turkey will continue to increase in 2016 due to the entrance of new banks in the sector and increasing penetration. The number of Turkish participation banks increased to five following the foundation of Ziraat Participation Bank, and by September 2015, the total assets of participation banks and loans in the banking sector was around 5.1 percent. The report also reflects the government's decision to increase the rate of assets and loans in the participation banking sector to 15 percent by the end of 2023. Along with Ziraat Participation Bank, founded in May 2015, and Vakıfbank, founded in February 2016, Halkbank is also planning to establish a participation bank.

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