February 18, 2015

Context, fact and law: demystifying the Bank Asya takeover

Taptuk Emre Erkoç*

What happened at Bank Asya?

Bank Asya is Turkey's largest Islamic lender bank, with 201 branches in Turkey, and trades on the İstanbul stock exchange.

On the authority of the Banking Regulation and Supervision Agency (BDDK), officials from the Savings Deposit Insurance Fund (TMSF) arrived at the general headquarters of Bank Asya late on Feb. 3 alongside police to enter the premises, dismiss the bank's nine-strong board of directors and appoint in its place a new temporary board from people with close links to the Justice and Development Party (AK Party) government -- taking control of the bank's management.

The BDDK, Turkey's banking watchdog, handed management control of 63 percent of Bank Asya's privilege shares to the TMSF, citing a lack of transparency. Bank Asya denies these claims, arguing (a) that it was asked to supply documents including those relating to third parties which were not within its possession and, even if they were, over which it had no legal right to supply without the express consent of the parties concerned, and (b) was given insufficient time to comply given the number of documents demanded, the variety of people to which they related and that a considerable sum concerned third parties.

Bank Asya has 183 “Group A” shareholders. The BDDK demanded the disclosure of a vast sum of documents, already in the possession of the relevant state bodies, from these shareholders and all of their business partners and from all other shareholders in companies that these Bank Asya shareholders held shares in. As a result, documents were demanded from 1,100 people.

The BDDK sent Bank Asya a notice on Dec. 18, 2014 demanding that this vast sum of documents be filed by the end of the month -- exactly seven working days, excluding public holidays. Bank Asya requested more time considering the vast sum of documents required from an unspecified number of people. The BDDK gave Bank Asya until the end of January 2015 -- a total of 28 days, excluding public holidays, to file these papers from the original date of notice. Twenty-eight days is extremely short notice to identify and compile these documents. The bank's further deadline extension requests were denied.

As of Feb. 3, the day on which the BDDK seized control, the Bank Asya management had furnished the BDDK with 58 percent of the requested documents. Despite this, the BDDK went ahead with its decision to seize control of the bank's management.

Is the decision legal?

According to the banking law, the only sanction against a bank for incomplete disclosure of documents on time is a monetary fine of between TL 5,000 and TL 15,000 per person from “Group A” shareholders.

The appointment of a new board of directors to the bank was not made on the basis of Article 71 (which relates to a bank's capital adequacy ratio weakness) but on the basis of Article 18. This article, however, does not allow for the replacement of a bank's management in any instance whatsoever.

Article 18 contains no reference to a bank's finances or its capital adequacy ratio. Therefore, the decision to seize control of the bank's management had nothing to do with the bank's financial standing. This is most likely why the BDDK did not base its decision on Article 71, which at least allows for bank management seizure provided the conditions are met, but instead based its decision on Article 18 relating to document disclosure of “Group A” shareholders which does not allow for such a measure in any instance. Ernst & Young conducted the latest independent audit report of Bank Asya in September 2014, in which it did not state any structural irregularities.

The bank's capital adequacy ratio is more than double the amount of the 8 percent criteria required by the global Basel III accord. The 17.35 capital adequacy ratio of Bank Asya is above the Turkey average. In terms of capital adequacy, Bank Asya is one of Turkey's top three banks.

Why was Bank Asya targeted?

The arbitrary seizure of Bank Asya's management illustrates the rising authoritarianism in Turkey since 2011. Recep Tayyip Erdoğan and his AK Party government are persecuting people and groups in all sectors, including the media, the judiciary, the business world and civil society. In a highly regulated country with an authoritarian government, businesspeople are afraid of speaking out against ever-mounting pressure. One of Turkey's largest and oldest business confederations, the Turkish Industrialists and Businessmen's Association (TÜSİAD), has been targeted by President Erdoğan many times to date.

Erdoğan described the Gezi Park protests and the Dec. 17 and 25 corruption investigation as a coup. He labeled the Gezi Park protesters and the judges, prosecutors and police officers investigating the corruption allegations as domestic “pawns” of the “international interest lobby” and “coalition of foreign powers,” respectively, seeking to overthrow his government. He even accused Turkey's four largest private banks of assisting the Gezi Park protests. Social media sources close to the government shared news that supporters and members of the government were asked to withdraw their deposits and cancel any credit cards they held with these banks. Finally, Erdoğan accused the Hizmet movement of being a “parallel state” and banned Twitter and YouTube after the corruption investigations began.

Businesspeople, journalists, media executives and civil society organizations are being silenced under government pressure. Similarly, the Hizmet movement is also being targeted. Businesspeople supportive of the movement are being identified and subjected to systematic harassment. Founders and shareholders of Bank Asya are also being targeted in this vein.

Attacks against Bank Asya in the past 14 months

On Oct. 8, 2014, Reuters published a news article about Erdoğan's attempt to take over Bank Asya. The article said Erdoğan had demanded that the “keys to the bank be on my desk” by his return from a state visit abroad.

The immediate withdrawal of all state deposits in the bank amounting to TL 4 billion -- equivalent to 20 percent of the bank's total deposits -- after the corruption investigations began.

The immediate withdrawal of all pro-government deposits in the bank after the corruption investigations began.

The cancelation of all state protocols with the bank, including those with the Ankara Revenue Office and the Social Security Institution (SGK), removing its right to collect tax on behalf of the state and even the right of account holders to pay utility bills to providers through direct debits.

Erdoğan's statement that “that bank has already gone bankrupt” made in September 2014 -- a clear violation of banking laws that criminalize any statements likely to influence public confidence in a bank -- caused Asya Bank to lose value on the İstanbul stock exchange.

The government made a statement to the media that “a bank has made a $2 billion profit from the currency fluctuation caused by the corruption scandal [implying the bank had insider knowledge of the investigations before they became public] and there are documents to prove it,” in reference to Bank Asya. The bank made no such profit and the repeated demands for proof have been ignored.

The bank's shares were intermittently blocked on the İstanbul stock exchange, especially when the bank's shares were increasing.

A systematic and relentless media smear campaign was launched and maintained by pro-government media since December 2013 claiming that the bank was about to go bankrupt and that the government should intervene.

Erdoğan called on the BDDK to take over the bank on his return from Qatar on Sept. 15. It is a crime and against the banking law for a president, who must remain neutral, to give orders to the BDDK (according to BDDK Article 82).

*Taptuk Emre Erkoç is the director of the Turkey Institute, London.

Published on Today's Zaman, 18 February 2015, Wednesday