Recent government initiatives will spur momentum for Turkey’s fast-growing Islamic banking market, credit rating agency Standard & Poors (S&P) has said.
Islamic finance in Turkey has grown at a markedly faster pace than conventional finance over the past ten years. Islamic banks in the country, officially known as participation banks, have doubled their share of overall banking assets over the past decade to roughly five per cent or $42.2 billion at year-end 2015, the agency said in its report, The Emergence Of New Turkish Islamic Lenders: A Game Changer?, released on Thursday (June 23).
The annual volume of sukuk issuance in the country increased nearly 20-fold over the same period, growing from $100 million in 2010 to almost $2bn by year-end 2015.
“Turkish authorities have now made tangible steps to support the growth of Islamic finance in the country,” said Timucin Engin, credit analyst at S&P Global Ratings.
“Although Turkey’s overall economic structure and demographics are distinctly different from those of Gulf countries, we expect the Turkish Islamic banks’ market share to double to more than ten per cent by year-end 2025,” said another credit analyst, Mohamed Damak.
“In particular, we expect the additional capital that will be deployed by new participation banks to provide an important stimulus for the sector. Nevertheless, although we expect economic growth in Turkey to average above three per cent per year over our forecast horizon of 2016-2019, we also expect to see a distinct slowdown in credit growth after years of fast-paced growth. This means that, although we expect Islamic banks to continue to capture overall market share in Turkey’s banking system, we still expect average growth rates for the Turkish banking system to decelerate to around 11 per cent between 2016 and 2019,” Damak added.