October 21, 2014

Empowering TMSF bodes ill for economy's future, experts warn

The government's draft bill that promises extraordinary powers for the Savings Deposits Insurance Fund (TMSF) including transferring a failed bank's assets to other banks and establishing a bank without seeking the permission of the Banking Regulation and Supervision Agency (BDDK) has caused experts to warn that such a move will jeopardize the country's economic outlook.

The TMSF will have the power to directly ask banks to declare bankruptcy whose licenses are revoked, and in such instances, the bank will not be able to benefit from the bankruptcy adjournment right as defined in the Law of Debt Enforcement and Bankruptcy. The draft bill also precludes the payments to the bank's controlling shareholders the remaining amounts from clearing legally obliged payments after liquidation of a bank's assets. The money, in such a case, will be shared apropos to the amount of shares between the TMSF and the other shareholders.

Former president of the Capital Markets Board (SPK) Professor Dr. Doğan Cansızlar criticized the bill during a TV show on Tuesday, saying that giving such rights to the TMSF “sounds wrong” to him.

According to the new bill, the clean assets and loans of the bank will be able to be transferred to a new financial institution, also called a bridge bank, while all problematic and risky assets and liabilities will be retained in the confiscated lender if the TMSF takes over a bank, Cansızlar said.

The bill also makes it possible for the TMSF to establish a participation bank, and the body will be able to transfer a confiscated bank to state-owned participation banks without tender, Cansızlar said, and emphasized that this is a very problematic situation which seems to be in clear contradiction to the Constitution. The government has declared publicly that the state will own Islamic banks and has stepped up to provide a legal infrastructure to let existing public banks to establish their own Islamic banking institutions. It also removed the obligation for public banks to seek BDDK approval and other bureaucratic requirements that the country's banking law has in place for new bank openings.

Cansızlar said newspaper articles about the TMSF seem to be attempts to prepare a legal basis for the government's possible operation to confiscate Bank Asya. “Because neither the BDDK nor the SPK has put forth an opinion -- negative or positive -- about the BDDK until now. Besides, the SPK has just recently approved Bank Asya's application to increase its paid capital by 25 percent. This means that if a bank is resilient and healthy, it is impossible to transfer it to the fund [TMSF],” said Cansızlar. This is an extremely wrong step for the future of the economy, he added.

A specialist in treasury and fund management specialist in Australia, Selçuk Aziz commented on the issue in a written note sent to Today's Zaman that the draft bill allows the sale of a bank within six months after its acquisition without regard to whether the bank has a solid financial structure. The bill is probably aimed at Bank Asya, he said.

Bank Asya, Turkey's largest Islamic lender, has not made any statement concerning the draft bill or on whether the articles about the TMSF have anything to do with the government's intentions to sink the bank.

Under the influence of the President Recep Tayyip Erdoğan, the Turkish government has publicly declared its animosity toward Bank Asya over its affiliations with the Hizmet movement, which the government has chosen as a scapegoat after being cornered by serious corruption allegations in probes which were made public on Dec. 17 and Dec. 25 last year. These investigations were stifled by the government after thorough overhauls in the judiciary by promoting pro-government judges and prosecutors to important positions while assigning prosecutors of the cases to trivial posts.

Erdoğan has in several occasions expressed defamatory remarks about the bank, accusing it of having bad financials, and even once claiming that the bank has already sank. Having one of the best capital adequacy rates in the sector, Bank Asya has rejected such assertions. Although talking about a bank in a way that may shake its prestige or cause a loss of confidence in it is a serious crime, Erdoğan feels free to make such derogatory comments about banks, relying on his presidential immunity.

Aziz said the articles about the TMSF may yield serious consequences, as they will likely be perceived by foreign investors as arbitrary political interventions into free enterprise. “How can you make sure that the government will not do the same to Garanti or Akbank?” he said. Aziz warned that this move has the potential to inflict tremendous damages on not only financial markets, but also on the whole economy.

Some newspapers even claimed in their Tuesday editions that the draft makes it possible for the TMSF to confiscate the Bank Asya and transfer its assets to the new participation bank that the government is working hard to establish through the public bank Ziraat.

It has been speculated that the BDDK has rejected surrendering to the government's pressure to arbitrarily take over the Bank Asya, fearing the legal consequences of such an action, and so the government is now bypassing the BDDK and transferring its authorities to the TMSF to carry out its plan to sink Bank Asya.

Published on Today's Zaman, 21 October 2014, Tuesday