Officials in Turkey have long declared their intentions to transform Istanbul into an international financial center. Islamic finance could be the key to making that goal a reality.
Officials in Turkey have long declared their intentions to transform Istanbul into an international financial center. These declarations, however, have remained largely unrealized. That is changing. The first steps to making Turkey a global financial center are well under way.
For openers, officials in the country aim to help domestic banks grab a bigger share of the $1.8 trillion Islamic finance market. The desire reflects president Erdoğan’s and other senior AKP politicians’ disdain for securities that pay interest. The plan makes sense, though. Turkey is responsible for just 3% of global sukuk issuance. Malaysia boasts 67% of the market.
Currently, Islamic banking in Turkey is dominated by three lenders—Kuveyt Türk Katılım Bankasi, which plans to open the first Islamic bank in Germany in July; Albaraka Türk Katılım Bankası; and Türkiye Finans. However, three state banks that formerly steered clear of Islamic banking—Ziraat Bankasi, Halkbank and Vakifbank—are opening new units that will issue shariah-compliant products.
The government’s controversial takeover of Bank Asya, an Islamic lender established by supporters of Fethullah Gulen—a former ally of president Erdoğan who was later accused of fomenting a coup—should reinforce that bank’s foothold in the industry. The company’s plan is to boost Islamic banking’s slice of Turkey’s entire banking industry. The goal is to hike that share to 15% within the decade and to triple sector assets within five years.
It’s an ambitious target. But having conventional banks open Islamic finance divisions and issue shariah-compliant products makes the goal more achievable.
Other parts of the plan to turn Istanbul into a financial hub are moving ahead. About $2.6 billion has been invested to date in the appropriately named International Financial Center. When completed, the complex in Istanbul will be home to the head offices of Turkey’s financial market governing bodies, as well as to state-owned and private banks. The 45-million-square-foot district will also house, among other things, offices, retail shops, conference centers and hotels. All of this, notes Hüseyin Özkaya, CEO of Odeabank, “will be located on the Asian side of the [world’s] only transcontinental city.”