A rather unique case in Turkey’s banking history occurred on 22 July 2016. Asya Bank, a private financial institution with thousands of employees and millions of clients was shut down by the government for political reasons.

Asya Bank was widely known to have close ties to the Hizmet Movement, which is inspired by the cleric Fethullah Gulen, who is also the archenemy of Turkish President Recep Tayyip Erdogan. Following the mass purges applied all over the country by his regime, Erdogan targeted, not only the shareholders of the bank (many of whom were imprisoned), but also the bank’s customers.

The closure of Asya Bank came as a big blow to the rule of law in the country. It also caused serious damage of the credibility of the Turkish economy.

Today, the country is struggling to overcome a deepening economic crisis, which has seen the national currency (lira) tumble to record lows.

European Interest caught up with a Turkish national banking and finance executive, who was visiting Europe, to discuss what happened with Asya Bank, as well as on the current economic crisis in Turkey.

Speaking to European Interest on the condition of anonymity, the executive explained that the roots of the actual economic crisis are due, among other reasons, to high levels of corruption, huge state-funded works (such as the Presidential Palace in Ankara, which is the biggest of its kind in Europe) and the monopolisation of the economy by the construction sector, as well as the heavy blow against the rule of law.

European Interest: Asya Bank was shut down for political reasons. Thousands of other big, medium or small-size companies were also shut down after the alleged coup d’état in 2016. What was the impact (damage) for the Turkish economy and for Turkish society?

Former bank executive: Bank Asya was a mid-sized bank in the market so after its operations were suspended there is no direct mass impact over Turkish economy. But 5,000 employees lost their jobs, 8 billion EUR credit volume to more than 100,000 SMEs and retail clients was lost, 2 million Asya Bank-issued credit cards, business volume was disappeared etc. Please note that 52% of the bank is listed on the İstanbul Stock Exchange so many people lost their investments as shareholders.

This crackdown indicated that the rule of law in the country does not exist anymore. Market has its rules and does not comply with such rude interventions.

Who were Asya Bank’s clients before the government took over? What happened with the Asya Bank assets?

In 20 years’ time, the bank has reached to 4.2 million active account holders. A wide range of the Turkish population was involved. The banks deposit portfolio is transferred to the Vakıf Participating Bank. The other assets are under liquidations process.

There have been rumours that Asya Bank customers became de facto suspects following the July 15, 2016 events. Is there any truth to these rumours?

Yes, it is true. I have read in person some juridical documents including accusations of suspects that depositing his or her personal savings to this legally serving bank is a terrorist activity.

In 2015, thousands of people opened new savings accounts and or deposited money to their existing accounts which they aimed to prevent the expected liquidity crush of the bank caused by political pressure to the Bank. Unfortunately, today most of them are the target of a witch hunt, according to an interview of a lawyer on the internet that I have watched who is representing some Bank Asya victims. He said prosecutors are issuing indictments covering this action as an aid to terror and terrorist organisation and the result of this crime is 3 years and 8 months imprisonment.

What where the reasons that provoked the economic crisis in Turkey? Do you feel Turkey is able to overcome the current emerging market crisis?

There are lots of mistakes that had been made. The answer to this question covers so many chapters, but I can count: impairment of rule of law, wastefulness, corruption, relying only on construction sector to boost the economy and ignoring manufacturing sectors, ignoring R&D and scientific facilities, underserving policies in agriculture and educational system etc.

Besides, economy executive Deputy Prime Minister Ali Babacan and Central Bank Governor Erdem Başçı has implied fair and prudent macroeconomic policy and there were some problems, but there was a harmony in the Turkish economy.  After they stepped down a couple of years ago, they were replaced by weak and incapable persons who are not accepted by international finance authorities because of their obedient behaviour to President Erdogan. Maybe minister Mehmet Şimşek was the last figure among this team with a strong finance career but he also stepped down this year.

President Recep Tayyip Erdogan contradicts the Turkish Central Bank and has appointed his son-in-law as the economy minister. He recently took charge of the state-assets fund. The question is how “transparent” is the Turkish economy to global institutions, including credit-rating agencies.

I’ve tried to answer this in the previous question. The credit institutions have already graded the country as junk.

Some European and US banks limited their credit risk-based transactions nowadays where this risk averse approach to Turkey did not exist during 2007 global crisis.

How independent is Turkey’s monetary policy?

My professional background is not adequate to answer this question.

What do you see as the possible contagion points of the Turkish crisis to the European economy?

I cannot mathematically prove it, but personally I do not propose a melt-down in the national market except construction sector and maybe mergers among the banks in the next two or three years. So as soon as the economy survives, the contagion to Europe is going to be limited.

Is the Asya Bank case unique? Is Turkey safe for foreign investors?

Asya Bank case is unique in the finance sector. Asya Bank is the only bank taken over by authority, even its assets, is able to manage its liabilities and its Capital Adequacy Ratio was 15% of which was high above the minimum standards set by national supervision authority.

Be sure that corporate investors do not need our advice whether Turkey is safe or not regarding their portfolio risks. Because they are receiving day to day analysis of the Turkish markets. However, I found some of these foreign investors more optimistic – maybe due to their existing risks, but since this summer more realistic evaluations are gaining ground.

There are risks but also some opportunities over some potential companies on the buy side.

On the other hand, foreign direct investment [FDI] volume is historically low and some international trade marks in goods and service sector are leaving the country. Anyway, the treasury under the secretariat and the banks are still revolving their debts on the London Market though with higher risk premiums.

 

  • MJC

    Interesting article. Can the author give any hope to a foreign investor like me who was invested in the Asya bond? Is there any chance the government will deliver on its promise to reimburse foreign investors. I’d also love to connect with anyone else who had money invested in the Asya Sukuk.