Turkey’s stock exchange prolonged a freeze on Asya Katilim Bankasi AS’s shares, a day after it twice suspended trading in the Islamic lender that’s lost almost half of its market value this week.
Bank Asya swung between losses and gains of as much as 11% before Borsa Istanbul called the halt because of “abnormal" buy and sell orders on Thursday. The shares resumed trading on 15 September after a five-week suspension imposed on the heels of a failed takeover bid by Qatar Islamic Bank SAQ and amid speculation the government will seize the lender. The bank fell 48% in the three days through 17 September.
“There’s total uncertainty, a total inability to see what’s around the corner," Figen Ozavci, the deputy chief executive officer at Meksa Yatirim in Istanbul, said by phone. “Stocks have been suspended lots of times before, but we’ve no idea whether precedent will serve us in this case. It’s really the first time I’ve seen this happen to such an extent."
Investors have dumped stocks and bonds of Istanbul-based Bank Asya as the lender was dragged into a feud between President Recep Tayyip Erdogan and Fethullah Gulen, the Pennsylvania-based Islamic cleric who Erdogan blames for a graft probe that implicated his government in December. The president this week called for Turkey’s banking regulator to take action on Bank Asya, citing deteriorating finances.
“No one is trying to bankrupt a bank," said the president, speaking yesterday at an Istanbul conference for business group Tusiad. “That bank is already bust."
Following criticism from the president earlier this week, Bank Asya issued a statement saying that it was facing an “economic lynching campaign" and continued to carry out its responsibilities to depositors and shareholders.
The bank has said that it’s well-capitalized. Its capital ratio at the end of June was 17% under international standards, compared with the 16 percent average for Turkish banks. As Erdogan’s government has squeezed businesses aligned with the Gulen movement, non-performing loans have risen in the past few quarters, reaching 13% of total lending.
If Bank Asya’s bad loans jump to 25%—what the industry faced during the country’s 1999-2002 banking crisis—and the collateral backing them proves worthless, the additional 2.6 billion liras ($1.2 billion) of losses would wipe out the lender’s capital and render it insolvent, based on financial filings.
In an audit ordered by the government, regulators found an additional 362 million liras of potentially soured loans not being reported as such, pro-government daily Sabah reported last month, without citing anyone.
Solvent banks can go bust if enough depositors flee. During a bank run, the firm is forced to sell assets at a loss to pay the departing depositors until its capital is wiped out. Withdrawals by government agencies and state-owned companies reduced Bank Asya’s deposits by 30% from September 2013 to March 2014. Deposits stabilized in the second quarter of this year as pro-Gulen media urged supporters to put money in the bank.
“Barring a broader economic crisis in Turkey, the risk for Bank Asya doesn’t seem to be in bad loans but is on the liability side," said Alyssa Grzelak, a Washington-based senior economist for banking risk at research firm IHS Inc. “Panic outflows from retail depositors seem to have stopped. But another bank run could bring it down if it’s massive enough."
Local competitor TC Ziraat Bankasi AS decided against making a bid to buy the lender last month in favour of starting its own Sharia-compliant unit.
The government withdrew Bank Asya’s ability to collect tax on behalf of the state, according to an 7 August statement from the revenue administration, while the markets regulator barred it from issuing Islamic bonds later that month. Those politically motivated moves are damaging the reputation of the country’s banking system, IHS’s Grzelak said.
“This whole saga has called into question whether government influence over the banking sector has been rooted out after the last banking crisis," Grzelak said. “Bank Asya is fairly small, but it’s symbolic of the government meddling in banking and everything else."