May 30, 2015

Bank Asya seizure heightens concerns over political intimidation, financial system instability

The seizure of Islamic lender Bank Asya has intensified concerns over stability in the Turkish financial system, with opposition lawmakers and banking experts warning that the move dealt a blow to the autonomy of financial institutions that helped Turkey recover from a financial crisis in 2001 and boosted investor confidence.

Turkey's Banking Regulation and Supervision Agency (BDDK) announced late on Friday that it had handed over control of the bank to the state-run Savings Deposit Insurance Fund (TMSF) after a months-long political campaign targeting the bank.

The BDDK said it acted as "problems experienced in the bank's activities with its financial structure, its partnership and management makeup presented a danger ... in terms of confidence and stability in the financial system." Ali Babacan, the deputy prime minister in charge of economy, echoed the BDDK statement and claimed late on Friday that there was no political motive in the Bank Asya seizure.

“Tell it to the marines,” responded Mehmet Bekaroğlu, a deputy chairman of the main opposition Republican People's Party (CHP). In Twitter messages on Saturday, Bekaroğlu challenged the government to convince the nation that the seizure was entirely on economic grounds.

Bank Asya, founded by sympathizers of Turkish Islamic scholar Fethullah Gülen, has been targeted by President Recep Tayyip Erdoğan since a corruption scandal implicating people in his inner circle erupted in December 2013. Erdoğan blames the Gülen movement, also known as Hizmet (service), inspired by Gülen, for the corruption scandal, which it brands a “coup attempt.”

As Erdoğan's war on the Gülen movement intensified, Bank Asya depositors, including state-owned firms and institutions, last year withdrew TL 4 billion ($1.7 billion), or some 20 percent of its deposits, reportedly under pressure from Erdoğan.

Pro-government newspapers carried almost daily reports on Bank Asya's woes earlier last year, portraying it as a failing bank being propped up by members of the Gülen movement. The government also canceled tax collection and social security payment contracts with Bank Asya in August, while Erdoğan has on several occasions publicly targeted the bank, claiming it has bad financials and even once declaring that the bank has already sunk.

“President Erdoğan has already ordered the seizure of the bank. “This is all a pretext,” said Oktay Vural of the Nationalist Movement Party (MHP), referring to the official announcements regarding the Bank Asya seizure. Vural said the move was aimed at intimidating all government critics as the parliamentary elections approach.

The Bank Asya move came just days before the June 7 election and on the same day Erdoğan launched the Islamic operation of the state-owned Ziraat Bank. The seizure also comes two weeks after the appointment of a new chief to the BDDK, a veteran Islamic banker who recently said Islamic lenders would bolster the financial industry in line with the “New Turkey” -- a term coined by Erdoğan.

In a sign of political interference in the process, pro-government media outlets published the report of the Bank Asya seizure hours before the BDDK statement.

Twitter whistleblower Fuat Avni wrote earlier in the day that Erdoğan met with the board members of the BDDK at 3.00 p.m. and ordered the newly appointed chair of the watchdog to seize Bank Asya in a bid to consolidate ruling Justice and Development Party (AK Party) votes ahead of the parliamentary elections.

Investor confidence

The BDDK had already taken management control of Bank Asya in February, citing its failure to meet legal criteria. Bank Asya executives denied any wrongdoing, saying the bank had been given insufficient time to present detailed documents pertaining to shareholders and complaining repeatedly that management control has not been returned even after the most of the requested documents sought by the BBDK were submitted.

The move in February had prompted accusations of political meddling in the financial system that could hurt the country's reputation with international investors.

“It was precisely the same reason that caused the 2001 crisis: interference by politicians in the banking system,” said Abdullah Çelik, a former chief executive of Bank Asya. He said Turkey had set up the BDDK under pressure from the International Monetary Fund (IMF) so as to ensure the autonomy of the financial system and prevent such crises.

Although it suffered losses in 2014 on declining loans and deposits, the bank achieved a net profit in the first quarter of 2015 and has a capital adequacy ratio of 18 percent, one of the highest in the sector.

“Bank Asya made its payments despite about 1,000 untrue media reports targeting it,” Çelik said in televised remarks. “The bank fulfills all its responsibilities despite all the harassment, but you still go and seize it.”

Critics also said the BDDK argument that Bank Asya was handed over to the TMSF because of problems with its financial structure was problematic because the bank had been governed by a team appointed by the BDDK itself since Feb. 3.

"If there has been any deterioration in the bank's financial structure since that date, it would be the BDDK that is responsible for such deterioration," Doğan Cansızlar, former head of the Capital Markets Board (SPK), said. Cansızlar explained that the BDDK would have decided to seize control of Bank Asya, and not just its management, if there had been serious problems with its financial structure on Feb. 3.

"The bank reported a net profit in the first quarter. Therefore, the current situation of the bank's financial structure is the responsibility of the management appointed by the BDDK, not the previous administration of the bank," he said.

Cansızlar also warned that irritating foreign investors would be "unwise" given the fact that Turkey's external financing requirement stands at $220 billion.

Mahmut Tanal, a Republican People's Party (CHP) deputy, said the Bank Asya seizure was an act of intimidation targeting the business world as well as a clear violation of the right to private property and free enterprise. “This is also the rule of law being eroded, destroyed. When the security of the law is destroyed in a country, there will be no investments and money will fly away,” he said.

“The Bank Asya decision is an arbitrary and unlawful act of oppression. Foreign capital will now fear entering the Turkish market,” economy professor İbrahim Öztürk said during a live interview late on Friday.

Sami Karahan, a professor of commercial and banking law, said the seizure is an act of “political hijacking” of private property and is completely against the law and the Constitution. “Those who did this will sooner or later be held accountable,” he said.

Published on Today's Zaman, 30 May 2015, Saturday