Special finance institutions eye faster growth on the back of new law
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Special finance institutions in Turkey see their total assets reaching $26 billion by 2014 as they grab market share from the banking sector, an industry official said on Tuesday. As of 2004, total assets of special finance institutions, which operate according to Islamic principles, amounted to YTL 7.3 billion and represented 2.34 percent of the Turkish banking sector, according to Ufuk Uyan, chairman of the Special Finance Institutions Union, at a press conference in Istanbul. “We expect the share of special finance institutions of bank assets to reach 10 percent in the coming decade,” Uyan said. Total assets collected by these institutions, which engage in no-interest banking, reached YTL 6 billion at the end of 2004, 82 percent of which has been loaned to the private sector, Uyan said. Once it clears Parliament, new banking sector legislation drafted by the government is expected to give a boost to the share of special finance institutions in the banking sector as it extends a deposit guarantee to funds collected by these organizations. The guarantee has an upper limit of YTL 50,000. These institutions have been collectively managing their own insurance fund and the new legislation will empower the Savings Deposit Insurance Fund to administer it. The new legislation also defines these organizations as participatory banks, which Uyan said would facilitate international transactions. Special finance institutions had a total of 264 branches in Turkey as of the end of 2004, with net earnings of YTL 115 million, up 36 percent from the previous year. They employ more than 5,250 people. By 2014, special finance institutions are expected to have 750 branches and employ more than 10,000. He cautioned that Basel II banking principles, which will be adopted by Turkey as of 2007, will increase borrowing costs both for banks and special finance institutions and, in turn, reduce funds available to the manufacturing sector. “This is an issue that needs serious attention.” He predicted that the principles would also expose a need for additional capital, calling for more efficient supervision by the Banking Regulation and Supervision Agency. He said steps should be taken to reduce costs both for the banking and manufacturing sectors, such as not cutting the resource utilization support fund (KKDF). Economy Minister Ali Babacan has hinted at plans to curb such cuts and other taxes that boost costs in the banking sector. Dwelling on prospects of foreign investment in special finance institutions, Uyan said Dubai Islamic Bank has already opened a representative office in Istanbul and that Arab Banking Corporation has similar plans. “Why would someone open a representative office? To do preliminary research,” said Uyan. |