The regulator cited article 8 of the Turkish banking law, which lists financial strength and transparency among issues that might contribute to the blocking of such an acquisition, although it failed to specify its exact reasons. The move follows a similar decision in early August when the Kuwaiti International Investor Co was told that its lack of financial strength meant it could not buy Adabank, and suggests that the Turkish authorities might be beginning to resist the rush of foreign investment that has greeted the recovery of the country’s banking sector.
Data from the Bank Association of Turkey and Austrian bank CA IB show that the sector has more than doubled in size since the 2001 crisis, with total assets up from TL250 billion ($192 billion) in 2003 to a projected TL592 billion by the end of 2007. With that growth have come foreign investment and consolidation, to the extent that the country’s top three banks, Garanti Bank, Akbank and Ziraat Bank, now account for more than 50% of total profits.
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Turkey’s banking sector set to grow... and grow |
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Bank assets in Turkish Lira |
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Source: BAT, BRSA, CA IB estimates |
"Most investors are bullish on Turkey and have gone in quite heavily," says George Zois, an analyst at Fox-Pitt, Kelton. "Investment has pulled back somewhat in recent months compared with the first half of the year, when an all-time high of 55% of holdings in the Istanbul stock exchange were foreign-owned, but people recognize that profound growth is still likely."
Foreign banks wishing to be a part of this growth story might be running out of viable targets, regardless of the BDDK’s willingness to allow more external control of the country’s banks. Garanti Bank and Akbank are already taken, with GE owning 25% of the former and Citi paying $3.1 billion for a 20% stake in the latter in January 2007. Smaller banks such as Alternatifbank and Adabank are still in theory up for grabs, barring regulatory intervention, but opportunities are running out. ING, for example, has reached an agreement to pay $2.67 billion for Oyak Bank, cited as one of the few remaining "meaningful acquisition targets" in a CA IB research report on the Turkish banking sector.
The news is not all bad for foreign banks coming late to Turkey; acquisitions are still being made. Standard Bank, for example, announced on August 3 that it had bought 67% of Dundas Ünlü Securities and will now trade in Turkey as Standard Ünlü.
Zois believes that the recent blocked sales do not represent a complete policy change. "The reason given for the stopping of the Alpha Bank deal was quite weak, but ultimately, given the direction their country’s going in, it doesn’t make sense for the Turkish authorities to be anti-foreign direct investment," he says.