Turkey has been able to continue its stable and strong economic growth while making a number of substantial changes in its legislation and financial sector. As planned, the New Turkish Commercial Code and the New Turkish Code of Obligations entered into force on the 1st July 2012. These two laws repealed their predecessors which were in force for decades. The commercial code and code of obligations may be defined as the fundamental codes which create the structure of whole financial and economic transactions in Turkey.
Another legislation change is made concerning real estate acquisition by foreigners. The procedure and requirements concerning the foreigners’ real estate acquisitions have been changed and reciprocity principle has been repealed. This latest amendment has made immovable acquisitions easier for foreign nationals.
In terms of the financial sector, Turkey successfully carried out a sovereign Sukuk issuance in 2012 for the first time. As a result of its successful economic performance in 2012, Turkey’s credit score was increased by credit institutions such as Fitch Ratings.
2012: A review
Turkish participation banks’ net profit (for the first nine months of 2012) reached TRY718 million (US$401 million) which showed a 21% increase when compared to the previous year. Additionally, participation banks strengthened their relations with foreign Islamic banks and the Participation Banks Association of Turkey (TKBB) signed an MoU with the Association of Islamic Banking Institutions Malaysia (AIBIM) to collaborate and establish a basis of cooperation between Malaysia and Turkey in further promoting the establishment, development, self-regulation and promotion of Islamic banking, Islamic capital and money markets on a global scale.
Russia’s top lender Sberbank has accomplished the biggest acquisition in its history. Sberbank has agreed to buy 99.85% of DenizBank from French-Belgian Dexia Group. Sberbank will pay US$3.5 billion for Denizbank, the fifth largest private bank in Turkey, as well as its subsidiaries in Russia and Austria.
Developments in the Sukuk market
A landmark US$1.5 billion sovereign Sukuk issuance on the 18th September 2012 set a benchmark for future issuances.
The issue was oversubscribed by more than five times, with a yield of 2.8% and maturing in 2019, bringing in more than US$8 billion. It is noted by the bankers that US$8 billion in demand was highly impressive for a first-time sovereign Sukuk issue.
The treasury issued the Sukuk with the mediation of Citigroup, HSBC and Kuwait Finance House. Kuwait Finance House’s subsidiary Kuwait Türk, meanwhile, has two Sukuk issues worth US$100 million and US$350 million, which are trading on the London Stock Exchange.
Real estate sector
As a result of the government’s motion the Turkish parliament enacted the Law on the Amendment of Land Registry Law and Cadastre Law on the 3rd May 2012 which made immovable acquisitions easier by foreign nationals. The previous form of the Land Registry Law No.2644 used to restrict the foreigners by reciprocity principle and by the real estate’s acreage. Namely, a foreign national had to be a citizen of a country which should have reciprocity with Turkey and secondly the acreage of the real estate should have an acreage of up to 2.5 hectares. These obstacles caused time and money waste for both seller and buyer and additionally discouraged foreign investors to invest in the Turkish real estate market.
2013: A preview
Regardless of global financial crisis, the banking sector in Turkey looks fundamentally positive, and is expected to witness fast growth in 2013.
Additionally, Islamic banking in Turkey has evolved in the past year. In 2012, new regulations regarding Sukuk were introduced to the Turkish market. In 2013, it is likely that the Turkish banking sector will participate more actively in issuing Sukuk bonds.
The Sukuk sector
In 2013, it is expected that conventional banks will issue Sukuk in addition to the participation banks. Akbank’s vice-general manager, Saltık Galatalı, stated that Akbank T.A.S. plans to issue Sukuk in an amount of TRY500 million (US$279.3 million). He also stated that they expect the private sector to issue Sukuk worth up to TRY10 billion (US$5.6 billion) in the next year. This improvement in Sukuk issuance can be defined as an outcome of the successful sovereign Sukuk issuance by the Turkish treasury.
The Turkish Capital Market Board published a statement on the Official Gazette dated the 24th November 2012 concerning an amendment to the Investment Funds Rules. According to the recent amendment it is now possible to include Sukuk in investment fund portfolios. This amendment may contribute to Sukuk sector’s development in 2013.
The treasury was able to finance its external debt within the first six months of 2012 and will use the Sukuk to finance its 2013 needs, translating to a lower Eurobond supply in 2013.
Real estate sector
Removing the reciprocity requirement and increasing the total purchasable acreage will attract more investors from the Middle East region and consequently Islamic instruments, such as Sukuk, will likely to be used for financing such real estate investments in Turkey. It should be noted that investors from all income levels have the opportunity to directly invest in different real estate projects. Therefore, the Turkish participation banks will play an important role on financing such investments from the Middle East.
Burak Gencoglu and Aytug Buyukatak are senior associates at Baspinar & Partners Law Firm. They can be contacted at
[email protected]
and
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respectively.