Abdullah Celik CoP 1

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Abdullah Celik CoP 1 Powered By Docstoc
					Development and Future of
Islamic Banking in Turkey

       Abdullah Çelik
       CEO, Bank Asya
                        Agenda

• Islamic Finance in the World
   – Global Existence
   – Development of Industry
   – Interest-Free Banking in the World


• Islamic Finance in Turkey
   –   Interest-Free Banking: Turkish Experience
   –   Milestones in Turkey
   –   Volume of Turkish Banking Sector
   –   Participation Banks’ Market Share
                   Global Existence
• Increasing market presence
   – Growing at 15 to 20% per annum
   – Size estimated over USD 1 trillion globally
   – New markets welcoming Islamic banks and products
• Market-driven proposition
   –   Retail demand has historically the backbone of the industry
   –   Sensitivities to principles more visible on retail deposit
   –   But corporates and even sovereigns showed appetite for the products
   –   Market-driven product development proved to be successful
   –   Self-regulating organizations accompanied global Islamic banking boom
• Global scale
   – More than 250 Islamic banks worldwide operating in over 75 countries
   – A wide range of interest varying from U.K. to Singapore
   – Widening customer base including sovereigns to top global corporates to tap
     Islamic finance markets
Development of industry
  •   Development of theoretical framework
  •   First attempts to structure Islamic banking products

  •   First institutions emerged to test the market

  •   Islamic Development Bank (1974) and DIB
  •   One country-one bank setup

  •   Advancement of Islamic products
  •   Turkish market to welcome Islamic banking
  •   Full “Islamization” of banking in some countries (Pakistan, Sudan
      etc.)

  •   Entry of global institutions & Islamic windows
  •   increasing global coverage of Islamic banking

  •   Islamic banks achieving strong and stable growth globally,
  •   New products in international markets
  •   Sukuk market to boom
 Interest-free Banking in the World
 Asset size of Interest-free Banking system
 (billion USD)                                                      2010
1400
                                                        1200        400                                                    60
1200
                                                     1085           350                52
                                              991                                                                          50
1000                                                                300
                                                                                                                           40
                                       791                          250
 800
                                                                    200                                                    30
                                                                                 22          25
                                574                                 150                                 20
 600                                                                                                                       20
                                                                    100    11
                                                                                                   7                       10
 400                                                                 50                                       5.5
                        300                                               369   181   209   119   79   57    39     25 4
                 195                                                  0                                                    0
 200     140

    0
          1995
                 2000
                         2005
                                2006
                                       2007
                                              2008
                                                      2009
                                                             2010




                                                                                Size (bn USD)
                                                                                Share in local banking (%)
  Source: The Banker, IIFM, Ernst & Young & Zawya
Interest Free Banking: Turkish Experience
•   Although interest-free banking was introduced as integral part of the Turkish financial
    system, it was in 1999, and after the new Banking Act no. 4491, that Special Finance
    Institutions were officially integrated into the Banking Law. Under the Banking Law,
    these institutions were brought under the same umbrella of regulations covering
    conventional banks.
•   The Banking Act 4491 had taken Special Finance Institutions under the state guarantee
    scheme with the so-called guarantee fund, alongside conventional banks, where
    ‘current’ and ‘profit/loss sharing’ participation accounts (local and foreign currency
    denominated) of up to TL50,000 and held by individual customers were brought under
    state guarantee.
•   The regulatory framework for Special Finance Institutions was strengthened in the
    following years. When the new Banking Law (no. 5411) came into effect in November
    2005, the Special Finance Institutions’ guarantee fund, (established in 2001) was
    merged into the Savings Deposits Insurance Fund (SDIF). Of equal importance, ‘Special
    Finance Institutions’ were renamed ‘Participation Banks’, with a more concrete
    definition of their interest-free characteristics with the introduction of new Banking
    Law.
•   Currently 4 participation banks are operating in Turkey: Albaraka Türk, Bank Asya,
    Kuveyt Türk and Türkiye Finans
                      Milestones in Turkey

                                               -Establishment of Special
Regulation with decree in                                                       Transfer of Special
                                               Finance House Association
force of law 83/7506.                                                           Finance House Security
(Establishment of Special                                                       Fund to Saving Deposit
                                               -Special Finance House
Finance Houses )                                                                and Insurance Fund
                                               Security Fund came into effect


       1983                     1999                      2001                         2005



                                                                                Transformation to
                            Inclusion within                                    Participation Banks
                            the Banking Law                                     from Special Finance
                                                                                Houses




                                                  7
   Volume of Turkish Banking Sector

                                                           Development &
                                Participation   Deposit
       December 2011                                         Investment        Total
                                   Banks         Banks
                                                                Banks
       # of Institutions             4            31             13             48
                       bn TRY       56.1        1,119.90       41.6        1,217.70
       Assets
                        (%)         4.6           92            3.4            100
                       bn TRY       39.2          656            -             684
     Deposits
                        (%)         5.6           94.4           -             100
                       bn TRY       41,0         635,5         23,6            661
       Loans
                         (%)        5.8           90.8          3.4            100


Source: BRSA reports


                                                                           8
         Growth Comparison (2005-2011)

    Participation Banks                   Banking Sector


          CAGR %    Participation Banks      CAGR %        Banking Sector

          Assets          33.5               Assets          20.1
         Deposits         29.6              Deposits         18.6
          Credits         33.0               Credits         27.1




Source: BRSA


                                                                9
Credit-to-Deposit Ratio (%)
Participation Banks’ Market Share
          Total Assets - Market Share (%)
Participation Banks’ Market Share
Funds Collected (Deposit)   Credit Market Share (%)
Market Share (%)
                             Branch and Staff Size
  800                                                                                                      16,000

  700
                                                                                                   685     14,000
                                                                                          607     13,851
  600                                                                            560     12,703            12,000
                                                                      530
                                                                                11,802
  500                                                         422     11,022                               10,000

  400                                                   355   9,215                                        8,000
                                        290         7,114
  300                      255                                                                             6,000
             188                       5,740
  200                     4,789                                                                            4,000
             3,520
  100                                                                                                      2,000

     0                                                                                                     0
            2003         2004          2005         2006      2007    2008      2009     2010     2011
                                                          Branches      Staff
Source: The Participation Banks Association of Turkey


                                                                                                    13
                   2023 Vision

Turkish State 2023 Plan            Participation Banking

• GDP of 2 trillion USD            • Istanbul as an Islamic
• Among most developed top           Financial Center
  ten countries of the world
• Istanbul as a financial center
Action Plan
  Shariah-compliant Banks and
Assets in Muslim Countries - 2011
                       (in billions of USD 2011)
2023 Market Potential for Islamic Finance
         - $8.602 billion USD
     What if countries with large populations achieve the average use of
                 Islamic finance represented by Malaysia?
Participation Banking in 2023
                                                                           3,900

       4000

       3500

       3000                                                       %15
       2500

       2000               %5
       1500                        675                         581
                     31
       1000

         500

           0

  Milyar USD
                       2011                                     2023

               Total Assets of Participation Banking   Total Assets of Banking Sector
                           Summary

• Globally, the Islamic Banking sector is expanding fast. Although the Middle
  East and Malaysia remain by far the biggest markets in the world, other
  regions and countries are starting to look at introducing this fast-growing
  asset class to their economies.

• Turkish participation banks has a proven track record, with new products
  and markets the pace of growth will increase.

• The key to success is “legislation”

				
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