Turkish President Recep Tayyıp Erdoğan on Friday inaugurated the country's first state-run Islamic Bank, Ziraat Participation Bank, an interest-free banking unit of Turkey's largest bank, T.C Ziraat Bankası A.Ş.
Speaking at the opening ceremony, Erdoğan said he expected other state banks to establish Islamic banking units soon.
“Participation banks open up new horizons with its partnership business model instate of interest," Erdoğan said.
The bank is now Turkey's fifth Islamic bank with its capital of $300 million, which it received from the Treasury.
In October last year, Turkey's banking watchdog, the Banking Regulation and Supervision Agency , or BDDK, approved the establishment of the new bank. Ziraat and its sister companies, Ziraat Insurance, Ziraat Savings, Ziraat Investment and Ziraat Technology, will be the shareholders of the new bank.
The bank, that plans to open 20 branches as a first phase, aims to grow to 170 branches and 2,200 staff by the end of 2018.
President Erdoğan expects the bank would be a role model with 500 branches in 2023. He also expects Istanbul would be the center of participation banking. “London is the center of participation banking; why London, not Istanbul?"
Erdoğan stressed that Istanbul should take “its deserved place" in Islamic finance. The Turkish government aims to establish Istanbul as a regional financial center and then as a global financial hub by 2023.
Islamic banking comprises 5 percent of the total banking system, Erdoğan said. The market share should increase to 20 percent by 2023, he added.
Erdogan, speaking at the inauguration of Ziraat's new business, said he also expected Ziraat to set up an Islamic insurance unit.
Two other sate-owned banks, Vakıfbank and Halkbank, also received the banking watchdog's approval to establish Islamic units, and expect to go into operation at year's end.
Turkey is working on developing a participation banking system on a global scale with other Muslim countries and Islamic institutions. Turkey's Deputy PM Ali Babcan announced earlier that they are going to establish a central Islamic Bank, in cooperation with Indonesia and Islamic Development bank.
