Saturday, September 03, 2011

Bank Asya expanding into the Balkans

Bank Asya, a Turkish participation bank (i.e. Islamic bank), made a couple of interesting announcements recently.  First, it plans on a $10-$20 million acquisition in the Balkans in partnership with the Islamic Development Bank.  Secondly, it is planning a $300 million sukuk by year-end, depending on market conditions. Third, it has asked for bids for the bank from interested buyers, and has received some which it says are below the bank's "potential". These three developments highlight areas of Islamic finance that I think are going to be important going forward. 

The first development of an acquisition in the Balkans is important because there is currently very little activity in Islamic banking in the Balkans, despite a sizeable Muslim population in some countries in the region.
Albania - 2.5 million - 79.9%
Bosnia-Herzegovina - 1.5 million - 48%
Bulgaria - 920,000 - 12.2%
Greece - 310,000 - 3%
Kosovo -  2 million - 89.6%
Macedonia - 680,000 - 33%
Montenegro - 111,000 - 17.7%
Serbia - 244,000 - 3.2%
Slovenia - 49,000 - 2.4%
This is probably fertile ground for Islamic banking even as the more developed countries like France and Germany struggle to adapt their legal systems to allow Islamic banking.  It is particularly valuable, I think, for the Islamic banking to be offered through an acquisition by a Turkish participation bank, which has significant experience offering Islamic banking products in an environment where the "Islamic" aspect is minimized for political reasons.  Unlike in GCC where the "Islamic" label is used without much dispute, it is much harder in secular Turkey to brand an Islamic bank as "Islamic".  It is no surprise that the first Islamic banking branch on the Continent (in Germany) was opened by KFH-Turkey.  If this acquisition becomes successful, it is quite likely in my opinion that future growth of Islamic banking in non-Muslim majority countries could adopt a more neutral brand (e.g. participation banking) to offer the same products, while avoiding political challenges from being labeled as "Islamic". 

The second move by Bank Asya is to offer a $300 million sukuk.  While this would be a relatively large sukuk, although not quite of benchmark size, it is pretty small relative to the bank's YTL14.5 billion ($8.5 billion) balance sheet. However, it would be a modest increase to their YTL 191 million ($111 million) reported funds borrowed as of the end of 2010 (compared with deposits of YTL9.1 billion ($5.3 billion)). 

Finally, the fact that the bank is accepting bids from potential buyers is significant, more for the rarity of Islamic banks (particularly outside of southeast Asia) putting themselves up for sale.  Many of the GCC Islamic banks are probably too small and operate in too competitive Islamic banking marketplaces, but are 'trophy assets' and are not open to offers from potential acquirers.  Yet, Bank Asya, even while posting profits and developing acquisition plans of its own is willing to consider bids from potential acquirers.  Perhaps we shall see Turkey take the lead into Europe, while also being open to acquisition by larger players within the global Islamic banking industry. 

1 comment:

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