Turkish-Arab Economic Forum Panel 6: Potential for Islamic Banking and “Sukuk” for Financing Major Projects in Turkey Hasan Genç Head of Enforcement Department Banking Regulation And Supervision Agency-BDDK

2 BANKING REGULATION AND SUPERVISION AGENCY 2 Islamic Banking implementation in Turkey Hasan GENÇ Head of Department Banking Regulation and Supervision Agency

3 BANKING REGULATION AND SUPERVISION AGENCY 3 Scope  Brief History  Regulatory Framework  Some Key Points  Financials  Sukuk Regulation

4 BANKING REGULATION AND SUPERVISION AGENCY 4 History ⌂ Decree of the Council of Ministers - (1983) (Special Finance Houses) ⌂ The Banks Law –(1999) (Special Finance Houses) ⌂ The Banking Law – (2005) (Participation Banks)

5 BANKING REGULATION AND SUPERVISION AGENCY 5  History  Regulatory Framework  Some Key Points  Financials  Sukuk Regulation

6 BANKING REGULATION AND SUPERVISION AGENCY 6 Regulatory Framework ⌂ Basically - Same rules ⌂ Specific provisions Defining funding & financing methods ⌂ Some differences  Provisions  Capital Adequacy

7 BANKING REGULATION AND SUPERVISION AGENCY 7 Types of Funding Participation fund Special current account Participation account Pool of special fund s

8 BANKING REGULATION AND SUPERVISION AGENCY 8 Financing Methods Corporate & Individual Financing Support (Murabaha) Profit & Loss Sharing Investment (Musharakah ) Joint investments (Joint venture -Musharakah) Financial leasing (Ijarah) Financing of Documents against Goods

9 BANKING REGULATION AND SUPERVISION AGENCY 9 Regulatory Framework - Provisions ⌂ Special and general provision accounts set aside for loans extended from participation accounts are reflected in accounts of expenses and accounts of participation according to the rates of participation in losses. ⌂ Participation banks, may set aside a portion of up to %5 of the profit to be distributed to participation accounts as provisions for use to meet the provisions.

10 BANKING REGULATION AND SUPERVISION AGENCY 10 Capital Adequacy Ratio ⌂ Loans extended from the participation accounts are taken into account 70% of their values in balance sheet in calculation of credit equivalents for calculating the credit risk ⌂ In calculation of Tier-II capital general reserves the sums of general provisions reflected by these banks in their expense accounts are taken into consideration.

11 BANKING REGULATION AND SUPERVISION AGENCY 11  History  Regulatory Framework  Some Key Points  Financials  Sukuk Regulation

12 BANKING REGULATION AND SUPERVISION AGENCY 12 Some Key Points ⌂ Deposit Guarantee Scheme Assurance Fund Savings Deposit Insurance Fund ⌂ Shariah Board No regulatory obligation ⌂ Islamic window Not allowed

13 BANKING REGULATION AND SUPERVISION AGENCY 13  History  Regulatory Framework  Some Key Points  Financials  Sukuk Regulation

14 BANKING REGULATION AND SUPERVISION AGENCY 14 Participatios Banks, as of December 2012 ⌂ 4 Participation banks (3 foreign shareholder control) ⌂ 38,78 billion USD total assets ⌂ 26,48 billion USD loan

15 BANKING REGULATION AND SUPERVISION AGENCY 15 Share in Banking Sector (%)

16 BANKING REGULATION AND SUPERVISION AGENCY 16 The Growth of Total Assets and Loans

17 BANKING REGULATION AND SUPERVISION AGENCY 17 Capital Adequacy Ratio (%)

18 BANKING REGULATION AND SUPERVISION AGENCY 18 Loan to Deposit Ratio (%)

19 BANKING REGULATION AND SUPERVISION AGENCY 19 Loan/Total Assets (%)

20 BANKING REGULATION AND SUPERVISION AGENCY 20  History  Regulatory Framework  Some Key Points  Financials  Sukuk Regulation

21 BANKING REGULATION AND SUPERVISION AGENCY 21 Sukuk Regulation ⌂ Sukuk Regulation - Capital Market Board – 2010 ⌂ A new Regulation Draft  More Detailed - 4 Kind of Sukuk  Murabaha Sukuk  Musharaka Sukuk  Ijara Sukuk  Wakala Sukuk  One SPV ⌂ Subordinated debt

22 BANKING REGULATION AND SUPERVISION AGENCY 22 Prospects… ⌂ More foreign investors ⌂ State Banks ⌂ Licensing ⌂ Sukuk issuance ⌂ Retirement Funds ⌂ Other…

23 BANKING REGULATION AND SUPERVISION AGENCY 23 THANK YOU