September 16, 2014

Rift between gov't and president grows over targeting of Bank Asya

Cracks are growing between President Recep Tayyip Erdoğan and the government of Prime Minister Ahmet Davutoğlu due to the president's personal vendetta targeting Bank Asya conflicting with the government's concerns that the smear campaign may negatively affect the nation's financial and banking industry, with critical comments being traded between the president and government officials.

Speaking to reporters during Tuesday's return flight following a recent visit to Qatar, Erdoğan publicly threatened the independent regulatory body, the Banking Regulation and Supervision Agency (BDDK), for not taking action against Bank Asya, saying that the agency must take a decision on the bank and follow through on it.

“You can't make a flour mill run with water you carry in a bucket,” he said, claiming that if citizens cannot withdraw their money from a bank any time they want, there is a problem with the bank's capital adequacy ratio. Erdoğan was ridiculing a public movement in which thousands of people rushed to deposit money with the bank to aid its struggle for survival, after the Erdoğan-led assault intended to sink Turkey's largest Islamic lender, Bank Asya, due to its affiliation with the Hizmet movement.

However, the government has made it clear that it does not support Erdoğan in this, with Davutoğlu saying that the speculation about the bank is ill-intentioned. He also said that the rules and regulations in the banking industry are very clear and that the banking system in Turkey can withstand all possible crises.

He underlined that those who comply with the rules have nothing to fear because Turkey is a country that respects the rule of law.

Deputy Prime Minister Ali Babacan, who is Turkey's economy czar, asked citizens to not pay any attention to statements other than those issued by regulators or authorities.

Speaking at the fifth İstanbul Finance Summit, Babacan said that rumors about the banking industry should be ignored as the BDDK is the only agency authorized by law to make statements about banks. “We have a banking industry that has acquired around 16-17 percent capital adequacy ratios,” he underlined.

Warning that the strength of the banking industry is of paramount importance for the Turkish economy, Babacan said that banks have accumulated large debts from foreign lenders because of Turkey's high current account deficit. “The BDDK issues its decisions on banks independently. When warranted, the BDDK makes a decision without hesitation,” Babacan explained.

Finance Minister Mehmet Şimşek told reporters on Tuesday that the law is very clear on the banking industry. “The responsible authority is the BDDK. They are the only ones who can issue a statement. I will not say anything more than that,” he said.

Bank Asya rejects false statements

Bank Asya hit back at Erdoğan's comments on Tuesday, saying that the company has continued its banking operations smoothly, defying the alleged uncertainty regarding the bank's deposits, shareholders and board. Recalling that the bank has been facing a smear campaign for the last 10 months in violation of the strict banking laws, the statement sent to Borsa İstanbul (BIST) underlined that the bank has fulfilled its commitments completely. It also said that not a single bank client had been inconvenienced during this time.

The statement also criticized Erdoğan's efforts to ridicule the public movement in which thousands of people rushed to deposit money with the bank. The bank emphasized that it will continue its normal operations despite the economic lynching campaign designed to push the bank into difficulty with meeting its commitments.

It also noted that the bank has successfully completed an unprecedented and intensive auditing in the last 10 months, adding to that it had complied with all the orders of regulators. Bank Asya reaffirmed that it will continue to fight against the smear campaign in court to protect the interests of its depositors and shareholders.

Bank Asya is one of the strongest and most resilient Turkish banks in terms of the size of its assets as well as its capital adequacy ratios. The government pressure started in December of last year, when a war was launched against the Hizmet movement to divert attention from two corruption investigations implicating government ministers.

Then-Prime Minister and current President Recep Tayyip Erdoğan has claimed that the Hizmet movement is the proxy of unnamed foreign plotters who plan to remove him from power with the corruption allegations.

Reports in the government-controlled media that publicly question the financial strength of Bank Asya -- which are part of an ongoing defamation campaign against the bank -- and the lack of government action on these reports have been brought to the parliamentary agenda by the opposition as well.

The provisions of the Banking Law tasks the government and regulators with the "protection of a bank's reputation" and prohibit "undermining a bank's reputation."

Under the influence of then-Prime Minister Erdoğan, an agreement between the Finance Ministry and Bank Asya allowing the bank to collect taxes was canceled in early August of this year. Following this move, the Social Security Institution (SGK) also ended its services agreement with Bank Asya. Discrimination against Bank Asya triggered a lawsuit by the bank against the government. Erdoğan reportedly asked businessmen to cancel their accounts with the bank after national flag carrier Turkish Airlines (THY) withdrew its deposits from Bank Asya.

The banking industry may be in worse shape than many think, after the Turkish Parliament debated claims by Twitter user @fuatavnifuat, who claims to be a member of Erdoğan's close entourage and who has revealed secret information concerning anti-democratic practices about a recent government report outlining a new strategy to sink and seize the bank.

Independent deputy İdris Bal asked Babacan about the claims that regulators decided to start “closely monitoring” other banks, which are all in worse condition than Bank Asya, to give an impression to foreign investors and banks that Bank Asya is not being singled out. The same questions were also raised by Umut Oran, an İstanbul deputy for the main opposition Republican People's Party (CHP).

CHP Deputy Chairman Sezgin Tanrıkulu said on Tuesday that Erdoğan has clearly committed a crime with his comments. “It is completely scandalous for Erdoğan to ask the BDDK to seize a bank,” he said, warning that no investors will come to a country where a private bank is being forced to collapse by the country's president.

Faik Öztrak, an economist and CHP deputy, said that Erdoğan will have to answer to a court of law one day because he has clearly violated the Constitution. He warned that irresponsible statements from authorities may spark a run on banks, triggering a systemic crisis in the economy.

Mustafa Destici, the leader of the Grand Unity Party (BBP), also lashed out at Erdoğan, saying that Erdoğan's comments must be considered as direct political interference into the independent regulatory agency BDDK. “This is a crime according to banking laws,” he said, adding that the rule of law is effectively suspended in Turkey and the country's competitiveness has been weakened.

The smear campaign took a toll on Bank Asya shares traded in BIST after Turkey's stock exchange on Monday lifted the ban on trading Bank Asya shares that it had imposed on Aug. 7.

The stocks of the private lender slumped 10.10 percent to TL 0.89 in the morning session on Tuesday.

The board of directors at the Bank Asya raised its total capital by TL 225 million to TL 1.12 billion on Tuesday to help boost its capital adequacy ratios, which are already among the highest among all banks in Turkey.

The additional capital will be injected into the bank's assets as cash

Experts shocked by attacks

Former Capital Markets Board (SPK) President Ali İhsan Karacan recently said in response to Erdoğan's defamation campaign: “I know there have been banks that were saved from going bankrupt in spite of the fact that they deserved to go under, but I've never heard of a financially sound bank that public authorities attempted to weaken and push to bankruptcy. Not only has such behavior not been observed in our country, it hasn't been observed in any democratic and developed country. Anyone who knows of such an example should tell us.”

Bank Asya's management has already announced that they will take legal action against the public officials who failed to use their power and authority to prevent the financial banditry, including the BDDK, the Savings Deposit Insurance Fund (TMSF), the SPK and BİST.

Turhan Bozkurt, an economist, says he was stunned to see that the public authorities tasked with “safeguarding the stability and soundness of the banking sector” openly target a bank that is performing perfectly in terms of its financial structure. “Someone will have to take responsibility for the losses suffered by Bank Asya's shareholders, investors who bought the bank's shares at the stock exchange and people who deposited their money in this bank. The Banking Law does not only apply to bankers. The BDDK and the SPK, too, have responsibilities under these laws,” Bozkurt said.

Moreover, the bank's shareholders are entitled to have recourse to the Constitutional Court, the European Court of Human Rights (ECtHR) and international arbitration, Bozkurt underlined, recalling the case of Yukos as the most recent example of those who fail to fulfill their duties.

According to the the Permanent Arbitration Court in The Hague's decision, Putin must pay $50 billion to the shareholders of Yukos for unfairly nationalizing the company, Bozkurt said.

Listed Violations

Observers say Erdoğan and others who have launched a public smear campaign against Bank Asya and those who failed to protect the bank from such attacks have committed a series of violations of the Constitution as well of legislation including banking laws and laws regulating the capital markets. Here are some of the constitutional articles and laws that protect banks' reputations and maintain public trust in the banks.

1. Constitutional Article 35 on private ownership says that everyone has the right to own and inherit property. These rights may be limited by law only in view of public interest. The exercise of the right to own property shall not be in contravention of the public interest.

2. Article 107 of Capital Markets Law states that “those who make purchases and sales, give orders, cancel orders, change orders or realize account activities with the purpose of creating a wrong or deceptive impression on the prices of capital market instruments, their price changes, their supplies and demands, shall be sentenced from two to five years in prison and be punished with a judicial fine of between 5,000 and 10,000 days. However, the amount of the judicial fine to be imposed due to this crime cannot be less than the benefit obtained by committing the crime.”

The second paragraph of the article says: “Those who give false, wrong or deceptive information, start rumors, speculate, make comments or prepare reports or distribute them in order to affect the prices of capital market instruments, their values or the decisions of investors, shall be sentenced to between two and five years in prison and be punished with given a judicial fine of up to 5,000 days.”

The third paragraph of the article says that “in the event that the person who has committed the crime defined in the first paragraph displays remorse and pays the Treasury an amount which is twice the benefit he/she has obtained or has caused to be obtained, not being less than TL 500,000, a) no penalty shall be imposed if the payment has been made before the investigation starts and b) the penalty to be imposed shall be reduced by half, if the payment is made during the phase of investigation, and c) the penalty to be imposed shall be reduced by one-third if the payment is made during the phase of prosecution until the judgment has been rendered.”

3. Article 74 of Banking Law No. 5411 states: “No real or legal person shall intentionally damage the reputation, prestige or assets of a bank or disseminate inaccurate news either using any means of communication defined in the Press Code No. 5187 or radio, television, video, Internet, cable TV or electronic data communication devices and similar tools.” Article 158 says “any person who violates the provisions of Article 74 of this law shall be sentenced to between one and three years in prison and given a judicial fine of between 1,000 and 2,000 days. If private or public loss has been incurred as a result of the offenses defined in the above paragraph, the penalties shall be increased by one-sixth.”

4. Article 82 of the same law states that “the Banking Regulation and Supervision Agency has been established as a public legal person with administrative and financial autonomy,” adding that “the agency shall independently perform and use the regulatory and supervisory duties and rights assigned thereto by this law and the applicable legislation, under its own responsibility.” It also underlines that “no organ, authority or person can give instructions and orders to influence the decisions of the agency.”

Published on Today's Zaman, 16 September 2014, Tuesday