March 30, 2015

BDDK infringes on own ruling in Bank Asya seizure

Turkey's banking watchdog, which took control of a small stake in the country's largest Islamic lender, Bank Asya, over what it described as an illegal share transaction early this month, appears to have breached one of its own rulings, made during a similar case in 2008, in which the watchdog had not required any permission for the transaction of corporate shares accounting for less than 10 percent of the bank.

The Banking Regulation and Supervision Agency (BDDK) said on March 4 that the Savings Deposit Insurance Fund (TMSF) had seized Class-A shares of publishing company Sürat Basım and construction firm Forum İnşaat because of a lack of permission in the January sale of their parent company, Kaynak Holding, to a Dutch firm. However, the watchdog seems to have disregarded its own ruling made during an internal correspondence within the institution.

The owners of Class-A shares, dubbed “privileged shares,” have a right to nominate board members. Putting forward a pretext for the seizure, the BDDK said on the day of the seizure that the company should have asked for the permission of the watchdog before the transfer of the shares.

However, the BDDK's legal affairs department had expressed a different opinion in a similar case in May 2008, saying corporate shareholders owning 10 percent or less in private lenders do not necessarily have to receive permission from the BDDK in the case of share transfers. The agency added that only if an amendment is made to current banking laws must permission be requested from corporate shareholders while transferring their shares.

Kaynak had been holding 6.47 percent of the bank's shares before it transferred all its shares to the Netherlands-based INL Partners B.V. The BDDK statement said only Class-A shares were seized, but did not specify the size of the holding.

Bank Asya has long been the target of regulators, with BDDK ruling on Feb. 3 that management control of 63 percent of the privileged shares of Bank Asya be transferred to the TMSF, arguing that the owners of those shares had failed to submit certain required documents to the agency within a one-and-a-half month deadline.

Shareholders defended themselves, saying the time allocated for the transfer of the requested documents was not enough time to even collect them, as the BDDK had requested around 20 different identification documents for both corporate and personal entities.

The BDDK's move was perceived to be the latest attempt to engineer a wave of fear among deposit holders in Bank Asya, which was claimed to have “already sank” by President Recep Tayyip Erdoğan, who has been waging a war against the faith-based Hizmet movement. Bank Asya and the country's largest opposition media, the Zaman daily, are known for their close ties to the movement.

The bank is currently managed by an interim board which was assigned by the TMSF after the takeover.

Ernst & Young may shut down Turkey branch over financial auditing

In the meantime, global auditing firm Ernst & Young's failure to comment on improper financial statements drawn up by the bank's interim board continues to draw rebuke from key figures.

Professor Doğan Cansızlar, the former head of the Capital Markets Board (SPK) told Bugün TV on Sunday that Ernst & Young Turkey may close down if it is found guilty of failure to comment on flawed financial results recently posted by Bank Asya, which has reported a profit every year since it was first established in 1986. Cansızlar said the auditing firm did not report any ambiguity or negative statements about the financial performance of the bank three months before the takeover.

Underlining that the current situation calls the credibility of Ernst &Young into question, Cansızlar said the Turkish branch of the firm may be obliged to shut down if the issue is taken to court.

Bank Asya shareholders last week lodged a complaint with the global headquarters of Ernst & Young, accusing the Turkish branch of the company of avoiding commenting on the recent financial statements which lack signatures of some of the interim board members. Highlighting that the protests of these shareholders carried weight, Cansızlar said the Turkish branch of the firm might have been influenced by pressure coming from the BDDK and the TMSF.

Published on Today's Zaman, 30 March 2015, Monday