September 5, 2014

Bank to sue watchdog over ‘smear campaign' as reactions mount

Turkish Islamic lender Bank Asya has decided to sue authorities over inaction in light of what it has called "massive smear campaign" against the financial institution for nine months.

The private lender said in a statement late on Thursday that it is going to fight the country's bank watchdog in court due to its silence in the face of "daily attacks on the bank." The Bank Asya statement came on the same that a source was quoted in Turkish media outlets as saying that the Banking Regulation and Supervision Agency (BDDK) has taken sweeping moves against Bank Asya. The move gives the BDDK the power to restrict or temporarily halt Bank Asya's operations, as well as to merge it with another bank, media outlets reported on Thursday.

Reuters cited a source as saying on Thursday that Bank Asya had been put under the scope of Article 70 of Turkey's banking law, which regulates BDDK's intervention in troubled banks. Among other powers, Article 70 allows BDDK to force staff changes in a troubled bank, including the top management, with new staff to be approved by the watchdog. An anonymous finance market official familiar with the issue told Today's Zaman on Friday that more than 10 banks in Turkey were under scrutiny within the scope of Article 70. “We haven't heard any of [the names of] these banks being disclosed so far. So why is the media sharing such information about Bank Asya? … This is a violation of laws protecting lenders,'' the official said.

The bank said in the statement that it had waited until the end of Thursday to see if the BDDK would make a statement about the claim. The BDDK has neither confirmed nor denied the news report that quoted a senior BDDK official. The statement said the bank has warned the BDDK many times both in written and verbal form, but the watchdog has failed to reject what it said "false accusations" and "smear campaign" against the bank. It said even some of BDDK officials were quoted in many news reports with remarks that contradict the reality of the situation, adding that the watchdog has not done anything to dismiss these statements or launch internal administrative investigations into these officials. Bank Asya said the bank has been "patient until today” and that it has decided to take its fight to a new level by filing a complaint against the banking watchdog as well as officials who have neglected their duty and facilitated open assaults on the Islamic lender.

Bank Asya is affiliated with Turkey's largest faith-based movement, Hizmet, which President Recep Tayyip Erdoğan has accused of plotting against him following two separate corruption probes implicating him and family last December. Following his victory in the presidential election in August, Erdoğan has repeatedly said the campaign against Hizmet would intensify. Last month, the government canceled tax collection and social security contracts with Bank Asya, a move seen by observers as an attempt to weaken the lender. However, Bank Asya said those actions would not have a significant impact on its activities.

Ratings agency Moody's cut the bank's rating by eight notches in two actions recently. The pro-government Turkish daily Sabah said on Thursday that if the planned BDDK measures did not save Bank Asya, the bank would be taken under the scope of Article 71 of the banking law, which allows the BDDK to order the Savings Deposit Insurance Fund (TMSF) to seize a bank. The Wall Street Journal on Thursday quoted an anonymous official at the Savings Deposit Insurance Fund (TMSF) as saying the TMSF was monitoring the developments and that the issue had not yet been referred to the fund.

State-run Ziraat Bank scrapped talks to acquire the Bank Asya last month. Bank Asya shares were suspended and removed from all indices. The bank attempted to form a strategic partnership with Qatar Islamic Bank (QIB) earlier this year, but sources close to the matter told Reuters last month that QIB and Bank Asya had ended the talks after a disagreement over the price.

Erdoğan, watchdog scrutinized over harming market

Market representatives and analysts reacted harshly against the alleged government plan to sink Bank Asya, asserting that the attempt would dent Turkish finance markets' credibility while discouraging foreign investors.

President Erdoğan's alleged efforts to pressure the BDDK to help sink Bank Asya and the watchdog's inaction are a clear violation of laws regulating and protecting financial institutions, observers argued, adding that such attempts hurt the Turkish banking system as a whole.

Former HSBC Turkey General Manager Piraye Antika reacted against the speculation about Bank Asya via Twitter on Thursday. “The treatment deemed proper on Bank Asya has dealt a major blow to the banking reforms that have been going on since 2002. Each bank should consider the outcome if a similar thing were to happen to them in the future,” Antika asserted.

Antika, who was replaced by Martin Spurling as HSBC head in 2010, also touched on alleged illegal operations at Bank Asya: “If it had an illegal shareholding structure, then how was Bank Asya able to get a banking license?” she said. Spreading rumors about the liquidity position of a bank is a crime according to the law, Antika stressed, adding that both depositors and shareholders of Bank Asya are negatively affected. “This will set an example in the future. I am very concerned about the situation that Bank Asya is being pushed into,” she said. She also asked: “How are the things that happened on Dec. 17 and 25 related to Bank Asya? Has a crime been proven?”

According to economist Atilla Yeşilada, the ongoing political pressure on Bank Asya dents Turkish finance markets' credibility while threatening to scare foreign investors. “Foreign shareholders have an important place in the Turkish finance system and Bank Asya has foreign partners. … there is an apparent fear among bankers and sector players that the government waging war against a private lender will backfire and eventually deteriorate economic balances along with the country's image in global markets,” Yeşilada asserted.

Separate market analysts earlier argued that shareholders in Bank Asya would take the alleged government campaign to sink the bank to international courts of arbitration, including the European Court of Human Rights (ECtHR). Yeşilada stressed that the incumbent government would opt to place similar pressure on the members of the Turkish Confederation of Businessmen and Industrialists (TUSKON), a leading business group affiliated with Hizmet. “The current pressure on private entities is unique in history and will be remembered in the future as a dark period Turkey had to suffer through,” Yeşilada said, recalling earlier government pressure on such leading Turkish conglomerates as Koç Holding and Doğan Holding.

Referring to widespread tension and fear due to intense government pressure in the markets, Yeşilada underlined that private investments can plunge in domestic markets.

“The government may have pinned their hopes on a quantitative easing by the European Central Bank [ECB] and anticipated that the US Federal Reserves (Fed) would limit its tapering of a monthly stimulus; however, these are temporary measures and a cash drought can hit Turkey badly at any time,” he said.

Yeşilada recalled that Russia and Venezuela had to suffer serious money shortages due to similar governmental practices and pressure on companies in these countries. He also criticized Turkish banking sector representatives and market regulators for turning a blind eye to the developments concerning Bank Asya. “Remaining silent in such hard times is tantamount to selling your soul to the devil. …and this is unfortunately what happens in Turkey,” he stressed.

“There is not much to say. This is sheer irresponsibility and those responsible for spreading rumors about a publicly traded lender will be held accountable in courts,” analyst Mehmet Altan told Today's Zaman via phone on Friday. Altan said the government is following the same patterns of despotism and political pressure as they did with legislation to close down private prepartory schools, or dershanes in Turkish.

“Abolishing private enterprise that the public wants contradicts core principles of the free market and democracy. This was the case in dershanes and is the same with Bank Asya now. …this government attempt is an open violation of laws,” Altan stressed. The analyst warned of “serious money shortages” in Turkish markets as foreign deposit holders will be reluctant to park their cash in Turkey following such cases as Bank Asya.

Turkish journalist Ufuk Şanlı shared serious allegations on his Twitter account late on Thursday. Şanlı said: “Three different supervisory groups have been sent to Bank Asya during the last five months in order to put pressure on it and ensure the handover of the bank to the TMSF.'' Şanlı further said the BDDK is preparing to put two more banks under review “to give the impression the BDDK is not targeting Bank Asya.”

In separate comments to the Wall Street Journal, analyst Sadrettin Bağcı from Turkey's Denizbank Yatırım said Bank Asya “does not pose a risk to the Turkish banking system. …The bank currently services its funds via the central bank and the markets have already priced potential risks pertaining to Bank Asya,” Bağcı told the Wall Street Journal.

Published on Today's Zaman, 05 September 2014, Friday

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