May 31, 2015

The compensation Turkey will have to pay for Bank Asya will be staggering

Commercial and banking law Prof. Sami Karahan described how Turkey was sentenced to pay USD 4.13 billion for the seizure of Kentbank by the ECtHR, and as Bank Asya was ten times larger than Kentbank, the payout after Friday’s seizure would likely be staggering.

Turkey's Kentbank was seized by the government during the domestic banking crisis of 2001 and handed to the Banking Regulation and Supervision Agency (BDDK). Following an appeal from Kentbank owner Süzer Holding, Turkey's Council of State ordered in February 2009 that the ownership of the bank be returned to its original owners and that its operating rights be reinstated. The court ruled that the bank owners had been unlawfully expropriated of their property. The BDDK refused to abide by the ruling and did not return the bank to its original owners. The bank's owners later appealed to the ECtHR, demanding their operating rights be returned and asked for USD 4.13 billion in compensation from the Turkish government.

“Bank Asya is ten times larger than Kentbank was,” said Marmara University Prof. Sami Karahan, “Just imagine the compensation the government will have to pay in that case. For example Russia had to pay USD 50 billion in the case of Yukos.”

Friday night the BDDK seized the country’s largest Islamic lender Bank Asya after a long, drawn out government-orchestrated campaign targeting the bank. Bank Asya had seen depositors including state-owned firms and institutions withdraw funds this year, with the government canceling tax collection and social security payment contracts in August. Pro-government media carried almost daily reports on Bank Asya's woes earlier last year, portraying it as a failing bank, and Turkish President Recep Tayyip Erdoğan has on several occasions expressed defamatory remarks about the bank, accusing it of having bad financials and even once claiming that the bank was already sunk.

Still unable to destroy the bank, the BDDK ruled on Feb. 3 that management control of 63 percent of the privileged shares held by A-type shareholders be handed over to the state-run Savings Deposit Insurance Fund (TMSF). On Friday it seized the entire bank, despite the fact that it had posted TRY 13 million (USD 4.9 million) in profits in the first quarter of the year.

“There is a serious violation of the law going on here,” said Prof. Karahan, “They attempted to sink the bank, to destroy its financial structure. Yet despite everything, they weren’t able to seize it on Feb. 3rd. They simply took over management with missing documentation as their excuse.”

For the February management takeover, the BDDK had claimed that some privileged shareholders in Bank Asya had failed to submit certain documents to the agency within one-and-a-half months, including documents regarding criminal records, audited financial records, tax records of the past five years, property records and accounts in other banks. The shareholders were asked to provide the documents for themselves and for any corporate holdings in which they had ownership. The short time allowed by the agency for the submission of the documents, however, stirred reactions from shareholders.

“When the bank still didn’t fail despite the takeover, they started concocting various scenarios over the past four months,” added Karahan, “They attempted to get hold of its database. They tried to destroy its balance sheet. They tried to get the bank in trouble by not submitting reports to inspectors. They tried everything they could. Despite this the bank still posted TRY 13 million in profits by the TMSF’s own admission. This drove them insane. The TMSF had seized the bank because of its failing finances. Then who sank the bank? If the bank’s finances really are broken, it’s because the TMSF’s management sank the bank and then seized it.

Pointing out that this was a completely politically-motivated seizure, Karahan reiterated that while it might look like a temporary setback, Bank Asya’s partners will eventually receive major compensation.

Published on BGNNews, 31 May 2015, Sunday