Turkey launches Ziraat Bank’s Islamic branch

“This is a historic step. Other state-owned banks should follow Ziraat’s move,” President Recep Tayyip Erdoğan said on May 29  during the opening ceremony in the Eminönü neighborhood, referring to Vakifbank and Halk Bank. 

The Banking Regulation and Supervision Agency (BDDK) allowed on Oct. 15, 2014 Ziraat and its sister companies - Ziraat Insurance, Ziraat Savings, Ziraat Investment and Ziraat Technology - to establish the new Islamic bank as main shareholders with a capital of $300 million.

Erdoğan underlined that Ziraat Bank should increase the share of Islamic banking in the country instead of taking a part of the current market.

Islamic banking comprises 5 percent of the total banking system, Erdoğan highlighted. The market share should increase to 20 percent by 2023, he said.

There are currently four islamic banks operating in Turkey: Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans. Ziraat is the fifth bank entering into that sector.

Erdoğan and the government are at odds with Bank Asya, which is linked to U.S.-based Islamic scholar Fethullah Gülen, who they blame with attempting to topple the gıovernment. 

The Turkish government aims to see the establishment of three Islamic banks in total as subsidiaries of the current state-run conventional banks by the end of 2015.

Saying that London is an important center for Islamic banking, Erdoğan stressed that Istanbul should take “its deserved place” in Islamic finance. The Turkish government aims to establish Istanbul as a regional financial center and then as a global financial hub by 2023.

Ali Babacan, Deputy Prime Minister, said this is an important start for Turkey, adding that the new bank aims to open 20 branches with a total of 400 employees at the end of this year.

“In 2018, the bank aims to have 170 branches with 2,200 personnel,” he said. President Erdogan said the bank should have 500 branches in 2023.

Babacan stressed that Islamic finance is rapidly growing around the globe. “In 2003, the market was at $200 billion, but it will reach $2 trillion by 2014,” Babacan said.

Islamic banking is based on the principle that money should not simply be lent at interest, but rather invested in a productive process which produces returns.