The Dispute over Bank Asya: what lies ahead in Erdogan’s Turkey?

By Giorgio Buttironi

The dispute between Erdogan’s government and Bank Asya has reignited in September following the lifting of a five-week trading ban imposed by Borsa Istanbul – Turkey’s stock exchange authority. The ever-growing interference of the executive into the market regulatory system raises a number of questions on the country’s future.

After being suspended for five weeks, Bank Asya resumed trading on 15th September 2014. Opening at 1.10 TRY (Turkish Liras), shares plummeted to a minimum of 0.64 TRY within three days. Between 15th and 17th September, Bank Asya shares lost 40% of their initial value hitting an all-time low and causing uncertainty for investors. A week later, the market’s verdict was more benign; after opening at 0.69 TRY, shares increased by 28% to a maximum of 0.96 TRY on 26th September.

Corruption Scandals

The dispute between President Erdogan and Bank Asya started when the police arrested approximately a number of government officials on allegations of corruption and bribery. The inquest led to the confiscation of 40 million Liras (£10 million) and the implication of Baris Guler and Kaan Caglayan – sons of government ministers holding key policy portfolios (interior affairs and the economy).

Erdogan, who was Prime Minister at the time, replaced almost half his ministers in a government reshuffle over Christmas. But the most surprising reaction came shortly after when a governmental decree removed 350 police officers, targeting particularly the financial crimes unit. Fethullah Gulen – the self-exiled scholar who leads the Hizmet movement – wasted no time in labelling these measures as a judicial power grab to bury the investigations.

Erdogan hit back saying that Hizmet sympathisers unleashed the investigation into officials of the AKP (the ruling Justice and Development Party) seeking to topple the democratically elected government of Turkey. From this moment on, the government – helped by sympathetic media outlets – embarked upon a crusade against companies founded by Hizmet members or sympathisers.

Bank Asya’s Story

Bank Asya is Turkey’s largest Islamic lender and was founded in 1996 by Hizmet followers. The movement advocates a different vision of Islam with a sympathetic eye for the role of science and interfaith dialogue, spreading its message through networks of schools and businesses. The movement possesses schools in over 140 countries and counts millions of members worldwide, involved in different sectors such as education and finance.

The government’s attacks have affected the bank’s reputation over the last ten months. Throughout the second quarter of 2014, Bank Asya lost 25% of its cash deposits because several state-owned and pro-government firms have withdrawn more than 4 billion TRY (£1 billion) from the lender. The government revoked Bank Asya’s license to collect taxes on behalf of the state in August 2014. Additionally, talks over a possible takeover bid between Bank Asya and Qatar Islamic Bank failed and Borsa Istanbul added to the lender’s troubles by imposing a five-week trading ban on its shares.

Erdogan vs. Bank Asya

Ahmet Beyaz (CEO of Bank Asya) has dismissed the smear campaign by stating that the lender is in overall healthy status. Beyaz underlined how Bank Asya’s capital adequacy ratio is around 20%, while the average value for other banks rests at 14-15% and the minimum legal threshold in Turkey is set at 12%.

President Erdogan has repeatedly stated that the bank has already failed and threatened the Banking Regulation and Supervision Agency (BDDK) for not taking appropriate action against Bank Asya.

Erdogan’s behaviour is cause for concern, not least because Turkish Banking Law affirms the independency of the BDDK and forbids any political official from exerting influence over its decisions. Furthermore, it envisages harsh penalties for anyone who intentionally damages the prestige of a bank.

By interfering vehemently with the BDDK and approving a negative campaign against the Islamic lender, which led to the withdrawal of capital support by state-owned companies and the failure of two takeover bids, Erdogan has de facto violated each of the abovementioned provisions and opened the government up to legal action.

Cause for Reflection

There are of course greater considerations to be drawn from this dispute on different aspects. Politically speaking, the disregard for the rule of law by the President of Turkey casts a shadow over the worsening condition of Turkey’s democratic system. With an opposition Republican People’s Party (CHP) unable to tackle Erdogan’s populist message and appeal with the majority of voters, the government’s current behaviour does not provide for positive prospects in the nearby future. From an economic standpoint, Erdogan’s actions vis-à-vis the BDDK are not likely to be greeted with warmth by foreign investors. In such an unhealthy environment, foreign investment may well decline and it will be more difficult to make the case for attracting other businessmen and firms to invest in Turkey.