The dispute over Bank Asya: What lies ahead in Erdoğan's Turkey?

Giorgio Buttironi*

The dispute between Recep Tayyip Erdoğan's government and Bank Asya reignited in September following the lifting of a five-week trading ban imposed by Borsa İstanbul (BİST) -- Turkey's stock exchange authority. The ever-growing interference of the executive in the market regulatory system raises a number of questions about the country's future.

After being suspended for five weeks, Bank Asya resumed trading on Sept. 15, 2014. Opening at TL 1.10, shares plummeted to a minimum of TL 0.64 within three days. Between Sept. 15 and 17, Bank Asya shares lost 40 percent of their initial value, hitting an all-time low and causing uncertainty for investors. A week later, the market's verdict was more benign; after opening at TL 0.69, shares increased by 28 percent to a maximum of TL 0.96 on Sept. 26.

Corruption scandals

The dispute between President Erdoğan and Bank Asya started when the police arrested a number of government officials on allegations of corruption and bribery. The inquest led to the confiscation of TL 40 million ($17.5 million) and the implication of Barış Güler and Kaan Çağlayan -- sons of government ministers holding key policy portfolios (interior affairs and the economy).

Erdoğan, who was prime minister at the time, replaced almost half his ministers in a government reshuffle over Christmas. But the most surprising reaction came shortly after, when a governmental decree removed 350 police officers, targeting particularly the financial crimes unit. Fethullah Gülen -- the self-exiled scholar who leads the Hizmet movement -- wasted no time in labeling these measures a judicial power grab to bury the investigations.

Erdoğan hit back, saying that Hizmet sympathizers had unleashed the investigation into officials of the ruling Justice and Development Party (AKP), seeking to topple the democratically elected government of Turkey. From this moment on, the government -- helped by sympathetic media outlets -- embarked upon a crusade against companies founded by Hizmet members or sympathizers.

Bank Asya's Story

Bank Asya is Turkey's largest Islamic lender, and it was founded in 1996 by Hizmet followers. The movement advocates a different vision of Islam, with a sympathetic eye for the role of science and interfaith dialogue, spreading its message through networks of schools and businesses. The movement possesses schools in over 140 countries and counts millions of members worldwide, involved in different sectors such as education and finance.

The government's attacks have affected the bank's reputation over the last 10 months. Throughout the second quarter of 2014, Bank Asya lost 25 percent of its cash deposits, because several state-owned and pro-government firms have withdrawn more than TL 4 billion (£1.7 billion) from the lender. The government revoked Bank Asya's license to collect taxes on behalf of the state in August of 2014. Additionally, talks on a possible takeover bid between Bank Asya and Qatar Islamic Bank failed, and BİST added to the lender's troubles by imposing a five-week trading ban on its shares.

Erdoğan vs. Bank Asya

Ahmet Beyaz (CEO of Bank Asya) has dismissed the smear campaign, stating that the lender is in overall healthy status. Beyaz underlined how Bank Asya's capital adequacy ratio is around 20 percent, while the average value for other banks rests at 14-15 percent and the minimum legal threshold in Turkey is set at 12 percent. President Erdoğan has repeatedly stated that the bank has already failed and chastised the Banking Regulation and Supervision Agency (BDDK) for not taking appropriate action against Bank Asya.

Erdoğan's behavior is cause for concern, not least because the Turkish Banking Law affirms the independence of the BDDK and forbids any political official from exerting influence over its decisions. Furthermore, it envisages harsh penalties for anyone who intentionally damages the prestige of a bank.

By interfering insistently with the BDDK and approving a negative campaign against the Islamic lender, which led to the withdrawal of capital support by state-owned companies and the failure of two takeover bids, Erdoğan has de facto violated each of the abovementioned provisions and opened the government up to legal action.

Cause for reflection

There are of course greater considerations to be drawn from this dispute in different aspects. Politically speaking, the disregard for the rule of law by the president of Turkey reveals the worsening condition of Turkey's democratic system. With the opposition Republican People's Party (CHP) unable to tackle Erdoğan's populist message and appeal to the majority of voters, the government's current behavior does not indicate positive prospects in the near future. From an economic standpoint, Erdoğan's actions vis-à-vis the BDDK are not likely to be greeted with warmth by foreign investors. In such an unhealthy environment, foreign investment may well decline, and it will be more difficult to attract other businessmen and firms to invest in Turkey.

*Giorgio Buttironi is the editor of BN Magazine.

Published on Today's Zaman, 15 October 2014, Wednesday