International Conference on Economic and Social Studies, 10-11 May, 2013, International Burch University, Sarajevo

Permission for Foundation or Branch and Office Establishment (Subsidiary) in Turkey

According to the 6th article of the Act no. 5411, the foundation of a bank in Turkey or the first branch establishment in Turkey of a foreign bank, is allowed with the condition that it is in accordance with the conditions proposed in the Act, and with decision taken through positive votes of at least 5 members of BRSA. Allowance applications and principles regarding to this allowance is determined by the regulations published by BRSA.

Conditions of Foundation

According to the 7th article of the Act, the main conditions for the foundation of a bank in Turkey are as follows:

a) It has to be founded as an incorporated company,

b) Stocks have to be issued in against cash reserve and all has be written in the title,

c) Founders has to have the qualities defined in the Act,

d) Board members has to have the qualities defined in the Act and to have professional experience in order to be able to realize planned operations,

e) Proposed subjects of operation have to be in accordance with planned structure of finance, management and organization,

f) Its issued capital free of every kind of collusion and in cash has to be at least 30 million New Turkish Lira,

g) Its founding charter has to be in accordance with provisions of the Act.

In addition, it has not so complex structure of organization and partnership which would prevent supervision, and plans regarding proposed operation objects and structures regarding internal organization have to be designed in a realist manner.

Provisions Regarding Loans

Participation banks are subject to strict provisions of the Banking Act regarding loan and loan limitations. At the end of the detailed definition of “loan” in the 48th article, in the second paragraph, fund utilization styles peculiar to participation banks are mentioned to be seen as loan in the implementation of the Act:

(…) funding obtained by participation banks through payments of prices of movable and immovable possessions and services, or through methods such as profit and loss partnership investments; supply of immovable, equipment or commodity; or financial rent; funding of documents against payment, joint investments and so on are accepted as loan (…)

Loan Limitations

The quality of loans in the assets of the banks is very significant in terms of building banking system on a sound basis and operating with sound balance sheets. The motive behind the Banking Act and regulations made by BRSA is the prevention of these bank owners utilizes collected funds in too risky operation fields or in their own group companies with disregard of objective evaluation. In order to achieve this goal, the Banking Act puts some limitations on the distribution of loans and proposes severe penal sanctions in case of violation. These limitations are valid also for participation banks. These are shown below in general terms.

Total loans utilized by a natural entity or a legal entity or by a risk group cannot exceed 25 % of equities. (There are some exceptional cases in which different rates are implicated.)…

Loans given to an ordinary partnership are assumed to be given to partners proportional to their responsibilities.

Loans utilized by all partners registered in the stock register holding 1 % or more of the bansk’s capital and entities consisting risk group with them cannot exceed 50 % of equities.

Loans utilized by partnerships controlled jointly are assumed to be utilized by the risk group which includes every shareholder controlling the partnership jointly proportional to the rate of its share within the partnership capital to the total share controlled jointly.

Loans utilized by a natural entity or a legal entity or by a risk group and equaling or exceeding 10 % of equities are assumed to be “great loan”. Total great loans cannot exceed 8-multiple of the equities. (…) When elements of the same risk group risk is included in the assurance of a risk group’s loans, topics such as how calculations will be made and how assurance elements with guarantee of country’s central government are mentioned in the Act (Banking Act no. 5411, article 54).

Operations without Loan Limitations

Furthermore, the 55th article mentions operations which are outside of loan limitations. Ones of these which are thought to be related to participation banks are listed below. BRSA can made additions to these operation types.

1. 
   Operations paid in cash, values and accounts similar to cash, and precious metals.
   
2. 
   In case of allocation of a new loan to the same entity or same risk group, with the condition of that loans given before in foreign currency or in unit of foreign currency are considered in current exchange rate as of the date when the following loan begins to be utilized, with the exception of use of check book or credit card, increases of loans stemming from change of exchange rate, and interest, profit share and other elements settled to overdue loans.
   
3. 
   Partnership shares obtained free because of every kind of capital increases and value increases of partnership shares which does not require any fund going out.
   
4. 
   Operations between banks according to the principles determined by the Council.
   
5. 
   Partnership shares obtained in scope of undertaking of mediating public offer.
   
6. 
   Operations considered as discount value in the account of equity.
   

Participation Banks Founded in Turkey

Special finance houses adopted by Turkish society in short time showed a rapid improvement in terms of collected funds, volume of work and project capacities. These finance institutions are:

Albaraka Türk Special Finance Institution Inc.: The first finance institution of interest free banking in Turkey, Albaraka Türk Participation Bank, finished its foundation in 1984, and began its operations as of the beginning of 1985. Its name is still Albaraka Türk Participation Bank. (Albaraka Türk – About Us, 2010)

Kuveyt Türk Evkaf Finance Institution Inc.: Kuveyt Türk, founded in 1989 at the status of Special Finance Institution, changed its name in May 2006 as Kuveyt Türk Participation Bank Inc (The History of Kuveyt Türk, 2010).

Anadolu Finance Institution Inc.: It began its operations in 1991 in Ankara. It is founded with domestic capital.

Faisal Finance Institution Inc.: Founded in 1985. In 2001, Faisal Finance Institution Inc. It has been taken over by Ülker Group, its trade name was changed to Family Finance Institution Inc. In 2005, Anadolu Finance Institution Inc. and Family Finance Institution Inc. merged under the name of Türkiye Finance Participation Bank Inc.

İhlas Finance Institution Inc: Founded in 1995. As a result of the 2001 economic crisis, it went on bankrupt and its official authorization has been cancelled. That bank still has been in liquidation, since 2001. We should underline the fact that the bankruptcy of this finance bank negatively influenced the other participation banks, too.

Asya Finance Institution Inc: Founded in 1996. After the Act no. 5411 came into effect, its name has been changed to Bank Asya Participation Bank.
After the Banking Act no. 5411 accepted on October 19, 2005 and published in the Official Journal on November 1, 2005, the name “Private Finance Institutions” has been changed to “Participation Banks”. And the name “Private Finance Institutions Association” has been changed to “Participation Banks Association of Turkey” which has also created their own insurance funds so as to prevent their depositors’ loss; because of any of its member’s probability of bankruptcy at which they could compensate similar to other banks. This insurance include some limits like deposit banks insurance.

Participation banks operating today among the institutions mentioned above are Albaraka Türk Participation Bank Inc., Kuveyt Türk Participation Bank Inc., Asya Participation Bank Inc. and Türkiye Finans Participation Bank Inc.

2.