July 21, 2015

European court rules Bank Asya-like seizure of bank unfair

In a decision that could potentially set a precedent for similar cases in Turkey, the Strasbourg-based European Court of Human Rights (ECtHR) on Tuesday ruled that the seizure of the country's Demirbank in 2001 was unfair.

Demirbank, Turkey's fifth largest private bank at the time, was seized by the government during the domestic banking crisis of 2001 and turned over to the Banking Regulation and Supervision Agency (BDDK). Demirbank was among the 11 banks that went bankrupt at the time.

The BDDK sold shares of Demirbank to HSBC for $350 million in 2001. Demirbank was established in 1953, and by the time it was sold to HSBC it had about 200 branches, $3 billion in deposits and some 650,000 retail customers.

The ECtHR said it has yet to decide on compensation for Demirbank. “The Court held that, in both cases, the question of just satisfaction was not ready for decision and reserved it for examination at a later date,” Tuesday's note on the ECtHR website said.

Observers say Tuesday's decision will set a precedent for any similar cases heard by the ECtHR in the future. Earlier this year, the BDDK handed over control of the country's largest Islamic lender Bank Asya to the state-run Savings Deposit Insurance Fund (TMSF), in what most consider a politically motivated move.

Experts earlier argued Turkey may be forced to pay sizeable compensation for the Bank Asya intervention in the future if an international court such as the ECtHR reverses the decision. Bank Asya has not yet appealed the seizure with the ECtHR.

Two shareholders in Demirbank had separately appealed the BDDK decision with the ECtHR, demanding that its operating rights be returned. Back in 2006, Demirbank shareholder businesswoman Sema Cıngıllıoğlu appealed with the ECtHR. Another shareholder, German citizen Michael Reisner also went to the ECtHR in 2009 after he failed to receive a favorable result in his court cases inside Turkey.

The court has been hearing the two appeals and said on Tuesday it found the confiscation unfair. The court ruled that the bank owners had been unlawfully expropriated of their property.

Following the domestic banking crisis of 2001, Turkish lender Kentbank was also seized by the government and handed over to the BDDK. The owner of the bank had appealed the decision with the ECtHR, demanding that its operating rights be returned and that $4.13 billion be paid in compensation. The court found the confiscation unfair.

Last year, the ECtHR awarded shareholders in Russian bank Yukos 1.9 billion euros ($2.6 billion) in damages. Yukos, once worth $40 billion, was broken up and nationalized a decade ago, with most of its assets handed to Rosneft, an energy giant run by an ally of President Vladimir Putin.

Published on Today's Zaman, 21 July 2015, Tuesday

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