(MENAFN- Gulf Times) President Recep Tayyip Erdogan's plans to nurture Islamic banking in Turkey may have an uncertain future.
Less than two weeks after the country's first state-run Shariah-compliant bank opened, the ruling AK Party, which was formerly led by Erdogan, failed to win enough seats at the general election to form a government on its own. The result is a blow to the power of the man who has championed so-called participation banking and last month pledged to more than triple its market share.
"The state's aggressive entry into participation banking was a project of the AK Party," Melih Murat Borekci, the London-based co-head of equity research at Yapi Kredi Yatirim, a Turkish brokerage, said by e-mail on June 8. After the election result, "it would be fair to expect re-evaluation of plans and delays in previous timetables and roll-out plans of the new entities," he said.
Two more state lenders have units that adhere to the Shariah ban on interest in the pipeline, after the AK Party stepped up its support for Shariah-compliant banking in its most recent term in government. The vote raises the possibility of a minority administration, a coalition government or another election.
Stocks and bonds fell after the vote and the lira became the worst performer among major currencies.
Erdogan stepped down as the party leader when he became president in August, but remains a dominant force in the party he helped found in 2001.
If a coalition forms, "the decisions will not be made by the AKP alone, which is not great news for Turkey's Islamic finance sector," Ipek Ozkardeskaya, an analyst at London Capital Group Ltd, said by e-mail on June 8.
State-run Ziraat Bank opened its first Shariah-compliant unit on May 29, and Halkbank plans to follow suit by the end of this year. Vakifbank said it will start an Islamic arm using a $300mn loan from the Jeddah, Saudi Arabia-based Islamic Development Bank. The three Turkish lenders didn't respond to e- mailed requests for comment last week.
Almost all of the country's population is Muslim and the AK Party, which has roots in political Islam, has expanded Islamic finance teaching in University economics departments. Shariah-compliant assets in Turkey have doubled over the past five years and are on course to top $180bn by 2023.
Turkey's cabinet appointed Mehmet Ali Akben, who has worked at two of the country's five Shariah-compliant banks, to head the Banking Regulation and Supervision Agency last month.
Akben "is known to be strongly supportive of the government's participation banking agenda," Aykut Ahlatcioglu, a banking analyst at Istanbul-based brokerage Oyak Menkul Degerler, said by phone on June 8.
Political uncertainty still "could drag on" and result in erratic policy making if a new government isn't formed within 45 days, according to Fitch Ratings.
"If there is a coalition, decision-making will be much slower," Oyak's Ahlatcioglu said.
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