Turkey plans to expand further into Islamic banking

Turkish Deputy Prime Minister announced plans to establish a ‘megabank’ which will act as a central bank for participation banks

Photo by: AA
Photo by: AA

Updated Jul 28, 2015

Turkish Deputy Prime Minister Ali Babacan said on Wednesday that the growth of Islamic banking would strengthen Turkey’s financial system, praising the rapid growth of Islamic banks, also known as participation banks.

Speaking at the 14th General Assembly meeting of the Participation Banks Association of Turkey in Istanbul, Babacan, the minister responsible for the economy said the latest global economic crisis showed that “interest-free financial methods are much more reliable, much more stable, and much more robust.”

Stating that "musareke" (profit-loss sharing) was a positive form of risk management, he said: “We believe that when this system becomes widespread in our country, our financial system will become much more robust.”

His remarks came after one of Turkey's largest state-controlled banks, Ziraat Bank, was authorised by the country's banking regulator to start operations in its Islamic banking division last week. The Banking Regulation and Supervision Agency issued a certificate giving permission to Ziraat Bank to commence operations as an Islamic bank.

On Oct. 15. of last year, the agency allowed Ziraat and its sister companies -- Ziraat Insurance, Ziraat Savings, Ziraat Investment and Ziraat Technology – to establish the new Islamic bank as main shareholders with a capital of $300 million.

There are over 300 Islamic financial institutions in 75 countries, according to Babacan.

The minister said that Turkey plans to establish, together with Indonesia, an institution named a “megabank”, which will function as a central bank for the participation banks.

“In a meeting with Indonesia and the Islamic Development Bank last month, we said that we, as Turkey, can put up at least $300 million for this, if it is established in accordance with principles of participation banking. We’ve now increased our efforts to [establish this].”

He also stated that an insurance system should also be developed using interest-free practice. “We believe this sector will also be developed in the upcoming period. We are ready to give every kind of support to this.”

Ali Babacan also stressed the importance of structural reforms and political will in order to overcome the economic crisis. “We see that countries which implement structural reforms are successful, and those who delay reforms, do not achieve any economic success.”