ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 THE PARTICIPATION BANKING AND ITS COMPARISON WITH DEPOSIT BANKING IN THE TURKISH FINANCE MARKET Ferhat Sayım, Murat Alakel Yalova University, Economics and Administration Sciences Faculty, Turkey Abstract Financial systems and institutions has become the most important reason in the fragility of world economic system. The formation and development process of the inancial structure also constitutes the infrastructure of the world economic system. The course of the inancial system and development has led to debate with the inancial crisis in 20092010. One of the discussion topic in order to eliminate problems caused by the conventional banking system is alternative inancing systems. In our country, the corporations based on proit share system which are named participation based banking spotlight, if the alternative banking systems are considered. These banks which determine different principles in the risk distribution of the portfolio acquired are analyzed more nowadays. Participation based banks are placed in almost every regulation related to banking terms and get their legal infrastructure more stable in the banking legislation of our country. In this study, we try to ind out the place and the importance of participation based banking with the various sub-headings especially in our country. We examine the comparative review 2007-2009 data of participation banks which Collected Turkish Currency and Foreign Currency Funds, Bank Loan Funds, Total Assets, Equity and Net Proit igures for the four participation banks in Turkey. We are comparing the total igures with deposit banks for the same period. One of our primary goal in this essay, to study in the framework of the alternatives of the inancial institutions and options. These options could be asserted as a vibrant and viable well established choice as a non-western model- different from the classical western interest based dominant banking system in the globe. Moreover, that participation banking systems’ growth, advancement and increase with its resourceful bulk of transactions and shares within the inancial market. In addition, we intended to delineate the basic functioning structures, rules, norms, principles, procedures, operations of the Alternate banking system in the inancial market. After that, we have applied as a descriptive, explanatory, discursive and comparative analytic methodology to expound the matter in detail. Having gathered a large volume of literature reviews then we have concentrated on Turkey as a model state in that banking system practice; at which, what kind of instruments and tools used by referring basic indicators, data and information related to the growth, lourish and share of that sector within the total banking and inancial system in Turkey. Furthermore, that participation banking system positions, researched in the country. Thus, it is explicated more concerns on by investigating its credits, deposits, inancing formulation systems and commitments with the banks, customers and investors of the alternate banking system in the country’s inancial order. At last, we have attempted to clarify and summarize the concepts, deinitions, expositions, demonstrations, rules, assets, liabilities, equities etc.. by giving special cultural internalizations about the organizational and operational activities of the participation banks both similarities and discrepancies, too; so as to draw the attentions of the new researchers and studies in that situation. Keywords: Bank, Finance Market, Finance Sector, Participation Bank, Islamic Bank, Interest Free Banking, Alternative Banking System. Introduction With their former name Private Finance Institutions, or with the new one, Participation Banks have no authority to collect deposits but receive fund through special current accounts or proit and loss participation accounts, and utilize fund through methods such as production support, community of proit and loss, inancial leasing, buying and selling documents against payment. Even if these institutions are have been allowed in Turkey since 1984, they have been limited in terms of both quantity and scale (Central Bank of Republic of Turkey, 2005). The constitution of the legal base for interest free banking in our country is dated as the end of the year 1983. With the decree dated 16.12.1983 and numbered 83/7506, the foundation of Private Finance Institutions is laid. 152 Participation Banks are banks operating in inancial sector, inancing real economy and offering banking service. Participation banks collect funds from saving owners, use them in industrial and trade sectors according to the interest free inancing principles and shares the proit or loss with saving owners. The word “participation” in their name expresses that this type of banking is based on the principle of participation to proit and loss (The Participation Banks Association of Turkey-FAQ, 2010). Participation banks serve as a means of transformation of saving to capital. Proportional to their advantage of working with a greater number of branches, they also give standard banking services such as investment consulting, safe deposit box, money transfer service, giving check book, mediating cash proceeds etc (Battal, 2007, p. 57). Today, variety of such services given by participation banks is equal or similar to the ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 standards of other banks. Now, in this article, we are going to elaborate as the unit of analysis, the Participation Banks, a new inancial instruments. In the middle of the irst quarter of 21th century, there has been occurred a World Financial Crises. In fact, that crises mainly inluenced the capitals of the inancial centre in the West. For those countries which heavily affected by this inancial crises, forced them look for new inancial instruments and systems. For that reason, it leaded to the quest for alternative models, opportunities or proposals. The iscal and inancial crises, especially in the European Union Member States, it may be due to of the rigidity of Maastricht Euro criteria, is deepening and deteriorates further. So we think that it proves the need for searching new sort of inancial innovations, techniques and tools. It is also our modest propositions that might be recorded some theoretical and practical contributions and amendments to overcome these current troublesome critical inancial problematic. One of our primary goal in this essay, to study in the framework of the alternatives of the inancial institutions and options. These options could be asserted as a vibrant and viable well established choice as a non-western modeldifferent from the classical western interest based dominant banking system in the globe. Moreover, that participation banking systems’ growth, advancement and increase with its resourceful bulk of transactions and shares within the inancial market. In addition, we intended to delineate the basic functioning structures, rules, norms, principles, procedures, operations of the Alternate banking system in the inancial market. After that, we have applied as a descriptive, explanatory, discursive and comparative analytic methodology to expound the matter in detail. Having gathered a large volume of literature reviews then we have concentrated on Turkey as a model state in that banking system practice; at which, what kind of instruments and tools used by referring basic indicators, data and information related to the growth, lourish and share of that sector within the total banking and inancial system in Turkey. Furthermore, that participation banking system positions has been researched in the country. Thus, it has been explicated more concerns on how it can be investigated by mentioning its credits, deposits, inancing formulation systems and commitments with the banks, customers and investors of the alternate banking system in the country’s inancial order. At last, we have attempted to clarify and summarize the concepts, deinitions, expositions, demonstrations, rules, assets, liabilities, equities etc.. by giving special cultural internalizations about the organizational and operational activities of the participation banks both similarities and discrepancies, too; so as to draw the attentions of the new researchers and studies in that situation. I. Participation Banking in The Literature Banking methods deined in this system called “Islamic Banking” in the international literature are methods such as various kinds of project partnership and others based on prohibition of interest (Moles & Tery, 1999, p. 304). Islamic banks in general referred to the three types of. (1) development banks, (2) Islamic banks in special purpose, (3) Islamic Commercial Banks. Participation banks may categorized in Islamic Commercial Banks groups (Canbaş & Doğukanlı, 2007, p. 237). Islamic bank works as a trading concern and inancial intermediary to perform interest-free activities purely according to principles of Sharia’h. It is a welfare organization that promotes business and trade activities by pooling the inancial resources for the sake of proit and loss for mutual beneit (Ahmad, Humayoun, & Hassan, 2010, p. 8). Participation or Islamic banks are not institutions peculiar to Turkey. All around the world, especially in Muslim countries, there are many inancial bodies operating according to a similar system. Even if the system consisting of such kind of institutions operating on the basis of partnership of proit and loss is known as “interest free banking” or “Islamic banking” in the world, it is taken irst as “special inance house”, and then as “participation banking” in the Turkish regulations. The irst modern experiment with Islamic banking can be traced to the establishment of the Mit Ghamr Savings Bank in Egypt in 1963. During the past four decades, however, Islamic banking has grown rapidly in terms of size and the number of players. Islamic banking is currently practiced in more than 50 countries worldwide. In Iran, Pakistan, and Sudan, only Islamic banking is allowed. In other countries, such as Bangladesh, Egypt, Indonesia, Jordan and Malaysia, Islamic banking co-exists with conventional banking. Islamic banking, moreover, is not limited to Islamic countries (Chong & Liu, 2009, s. 125-126). But, when we look at the books of inancial institutions generally we can’t see this institutions among the inancial institutions (Rose & Marquis, 2009). (Burton, Nasiba, & Brown, 2009) (Mishkin & Eakins, 2009) On the other hand Islamic banks ability to withstand the global downturn has fuelled an expansion of Islamic inance around the world. Islamic banks have learned that customer loyalty and brand loyalty must be earned (Omar & Ali, 2010, p. 25). The Islamic banking and inance systems in West will continue to grow in areas like Sukuk, Takaful, hedging funds, mutual funds, equity & asset management, corporate inance, wealth and asset management. These high street banks are far more accessible and popular, and all offer similar services. The main reason for the struggle is that, the Islamic bank is introducing an entirely new banking model into a country that has been built around an existing banking system that has been around for a long time (Malik & Malik, 2011, p. 184). Related Legal Regulations In Turkey Generally six types of regulations seek to enhance the net social benits of commercial banks services to the economy(1)safety and soundness regulation, (2)monetary policy regulation, (3)credit allocation regulation, (4)consumer protection regulation, (5)investor protection regulation and (6) entry and chartering regulation (Saunders & Cornett, Financial Markets and Institutions, 2004, p. 379). We will deal with some of these regulations in this study for Turkey. Deposit banks, participation banks, development and investment banks, branches of foreign banks, inancial holding irms in Turkey, The Banks Association of Turkey (BAT – Türkiye Bankalar Birliği), The Participation Banks Association of Turkey (PBAT – Türkiye Katılım Bankaları Birliği), Banking Regulation and Supervision Agency (BRSA – Bankacılık Düzenleme ve Denetleme Kurumu-BDDK), Savings Insurance Deposit Fund (SIDF – Tasarruf Mevduatı Sigorta Fonu-TMSF) and their activities are regulated by the mentioned Banking Act. With the condition that the provisions 153 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 of the related law are also valid for the banks founded according to special acts, the provisions of the Banking Act are applied. In case of absence of related provisions in the special act, general provisions are applied.( Banking Act no. 5411, article 2) Participation banks are supervised by Banking Regulation and Supervision Agency (BRSA). In 2004, the Uniform Chart of Account was formed for participation banks, and these institutions began bookkeeping as other banks, in accordance with the mentioned chart of account (Central Bank of Republic of Turkey, 2005). Deinitions Regarding Participation Banks in the Banking Act. In the 3rd article of the Banking Act no. 5411, there are important deinitions showing differences and similarities between participation banks and other banks. According to these deinitions, both deposit banks and participation banks consist two lower members of the higher deinition of “Loan Institution”. There are also two banks associations deined in the Banking Act, one of which is the Participation Banks Association of Turkey, and other is the Banks Association of Turkey with a more widespread structuring. The deinition of “bank” in the Banking Act includes 3 types of banks. These are: Deposit bank: Institutions operating mainly by accepting deposit and utilizing loan in accordance with the Act in the name and account of itself, and branches in Turkey of such foreign institutions, Participation bank: Institutions operating mainly by collecting funds through special current accounts and participation accounts and utilizing loan in accordance with the Act in the name and account of itself, and branches in Turkey of such foreign institutions, and Development and investment bank: Institutions operating mainly by utilizing loan rather than accepting deposit or participation funds, in accordance with the Act in the name and account of itself, and branches in Turkey of such foreign institutions. Permission for Foundation or Branch and Ofice Establishment (Subsidiary) in Turkey. According to the 6th article of the Act no. 5411, the foundation of a bank in Turkey or the irst branch establishment in Turkey of a foreign bank, is allowed with the condition that it is in accordance with the conditions proposed in the Act, and with decision taken through positive votes of at least 5 members of BRSA. Allowance applications and principles regarding to this allowance is determined by the regulations published by BRSA. Conditions of Foundation. According to the 7th article of the Act, the main conditions for the foundation of a bank in Turkey are as follows: a) It has to be founded as an incorporated company, b) Stocks have to be issued in against cash reserve and all has be written in the title, c) Founders has to have the qualities deined in the Act, d) Board members has to have the qualities deined in the Act and to have professional experience in order to be able to realize planned operations, e) Proposed subjects of operation have to be in accordance with planned structure of inance, management and organization, f) Its issued capital free of every kind of collusion and in cash has to be at least 30 million New Turkish Lira, g) Its founding charter has to be in accordance with provisions of the Act. 154 In addition, it has not so complex structure of organization and partnership which would prevent supervision, and plans regarding proposed operation objects and structures regarding internal organization have to be designed in a realist manner. Provisions Regarding Loans Participation banks are subject to strict provisions of the Banking Act regarding loan and loan limitations. At the end of the detailed deinition of “loan” in the 48th article, in the second paragraph, fund utilization styles peculiar to participation banks are mentioned to be seen as loan in the implementation of the Act: (…) funding obtained by participation banks through payments of prices of movable and immovable possessions and services, or through methods such as proit and loss partnership investments; supply of immovable, equipment or commodity; or inancial rent; funding of documents against payment, joint investments and so on are accepted as loan (…) Loan Limitations. The quality of loans in the assets of the banks is very signiicant in terms of building banking system on a sound basis and operating with sound balance sheets. The motive behind the Banking Act and regulations made by BRSA is the prevention of these bank owners utilize collected funds in too risky operation ields or in their own group companies with disregard of objective evaluation. In order to achieve this goal, the Banking Act puts some limitations on the distribution of loans and proposes severe penal sanctions in case of violation. These limitations are valid also for participation banks. These are shown below in general terms. Total loans utilized by a natural entity or a legal entity or by a risk group cannot exceed 25 % of equities. (There are some exceptional cases in which different rates are implicated.)… Loans given to an ordinary partnership are assumed to be given to partners proportional to their responsibilities. Loans utilized by all partners registered in the stock register holding 1 % or more of the bansk’s capital and entities consisting risk group with them cannot exceed 50 % of equities. Loans utilized by partnerships controlled jointly are assumed to be utilized by the risk group which includes every shareholder controlling the partnership jointly proportional to the rate of its share within the partnership capital to the total share controlled jointly. Loans utilized by a natural entity or a legal entity or by a risk group and equaling or exceeding 10 % of equities are assumed to be “great loan”. Total great loans cannot exceed 8-multiple of the equities. (…) When elements of the same risk group risk is included in the assurance of a risk group’s loans, topics such as how calculations will be made and how assurance elements with guarantee of country’s central government are mentioned in the Act. (Banking Act no. 5411, article 54) Operations without Loan Limitations. Furthermore, the 55th article mentions operations which are outside of loan limitations. Ones of these which are thought to be related to participation banks are listed below. BRSA can made additions to these operation types. a) Operations paid in cash, values and accounts similar to cash, and precious metals. b) In case of allocation of a new loan to the same entity or same risk group, with the condition of that loans given before in foreign currency or in unit of foreign ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 c) d) e) f) currency are considered in current exchange rate as of the date when the following loan begins to be utilized, with the exception of use of check book or credit card, increases of loans stemming from change of exchange rate, and interest, proit share and other elements settled to overdue loans. Partnership shares obtained free because of every kind of capital increases and value increases of partnership shares which does not require any fund going out. Operations between banks according to the principles determined by the Council. Partnership shares obtained in scope of undertaking of mediating public offer. Operations considered as discount value in the account of equity. Participation Banks Founded in Turkey Special inance houses adopted by Turkish society in short time showed a rapid improvement in terms of collected funds, volume of work and project capacities. These inance institutions are: Albaraka Türk Special Finance Institution Inc.: The irst inance institution of interest free banking in Turkey, Albaraka Türk Participation Bank, inished its foundation in 1984, and began its operations as of the beginning of 1985. Its name is still Albaraka Türk Participation Bank. (Albaraka Türk – About Us, 2010) Kuveyt Türk Evkaf Finance Institution Inc.: Kuveyt Türk, founded in 1989 at the status of Special Finance Institution, changed its name in May 2006 as Kuveyt Türk Participation Bank Inc (The History of Kuveyt Türk, 2010). Anadolu Finance Institution Inc.: It began its operations in 1991 in Ankara. It is founded with domestic capital. Faisal Finance Institution Inc.: Founded in 1985. In 2001, Faisal Finance Institution Inc. Has been taken over by Ülker Group, its trade name was changed to Family Finance Institution Inc. In 2005, Anadolu Finance Institution Inc. and Family Finance Institution Inc. merged under the name of Türkiye Finance Participation Bank Inc. İhlas Finance Institution Inc: Founded in 1995. As a result of the 2001 economic crisis, it went on bankrupt and its oficial authorization has been cancelled. It is very interesting that bank still has been in liquidation, since 2001. However, it has been also exempted from the executive authority of newly founded Turkish Depository Insurance Fund(TMSF) which took over, without hesitation, the management of the corrupted inancial corporations and companies in Turkey. That is why, many depositors had sued this bank in Turkish Commercial Banks, but both low courts and High Courts decisions were very far away on touching the tenets of the matter1. We should underline the fact that the bankruptcy of this inance bank negatively inluenced the other participation banks, too. Asya Finance Institution Inc: Founded in 1996. After the The essence of the matter is related to the liquidation of this bank has not been accomplished! Why?. This bank also is member of İstanbul Capital Market, too. Their shareholders lost; it is very normal that earning dividends as losses or proits in a free market system. But the Court based its decision putting the depositors of the bank as shareholders who may earn loss or proits. In addition, ıt has omitted that why İhlas Finance went on bankruptcy. In Turkey, because of macroeconomic instability till 2001, majority of holdings and corparations established their own banks and inancial institutions, thus those Holdings like İhlas Holding has utilized their banks and inancial institutions as subsidiary or branch company as similar to other business corporations 1 Act no. 5411 came into effect, its name has been changed to Bank Asya Participation Bank. After the Banking Act no. 5411 accepted on October 19, 2005 and published in the Oficial Journal on November 1, 2005, the name “Private Finance Institutions” has been changed to “Participation Banks”. And the name “Private Finance Institutions Association” has been changed to “Participation Banks Association of Turkey” which has also created their own insurance funds so as to prevent their depositors” loss; because of any of its member’s probability of bankruptcy at which they could conmpensate similar to other banks. But we don’t know how much deposits assured. But the other corporate banks gave assurance at most for amount of 50 000 TL. Participation banks operating today among the institutions mentioned above are Albaraka Türk Participation Bank Inc., Kuveyt Türk Participation Bank Inc., Asya Participation Bank Inc. and Türkiye Finans Participation Bank Inc. II. Methods of Fund Collection These organizations collect funds in the form of sharing accounts or current accounts to operate independently within each maturity group (Parasız, 2009, p. 251).Main items of liability side in the balance sheet of all irms consist of equity capital and loan capital. Equities are funds given by partners as capital or proit which is not distributed etc. These express resources belonging to the capital owners. However the share of equity item within the total capital is not so high in inance institutions and especially in banks in comparison to other businesses. It can be read as follows: An important part of resources of banks consist of loan capital. Because of the banking system is based on this. Bank or participation bank transforms funds collected from real or legal entities to loan. And the collected funds are naturally loan capital. Therefore, the growth of a bank depends on that it collects funds as much as possible in order to be able to give loan as much as possible. In deposit banks, fund collection is mostly realized through promise of interest. However participation banks cannot promise any future interest which would mean a predeined return. Participation banks collect funds mainly through three ways below. In addition to them, there are also investment accounts based on gold or precious metals. Current Account. Current accounts are funds which belong to physical or legal entities, money in which can be withdrawn every time partly or totally, and which don’t pay any interest or proit to their holders. These accounts are similar to checking accounts in interest banks. Account holders open current account to be free of trouble to protect their money against theft, loss etc., and have opportunity to keep their money in a safe place. They also use services provided by their bank such as use of commercial check book, Money transfer, collection of check and bills. With the help of these accounts, services are provided such as payment and so on, parallel to needs of commercial and daily life. Therefore, these accounts which are mostly dynamic are not proper to bring return and to promise interest. However banks can use these capitals as equity capital after determining average amounts held in these accounts and keeping the needed reserves. Participation Accounts. Participation accounts are funds of interest free banks which belong to physical or 155 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 legal entities, money in which is deposited as Turkish Lira or foreign currency against contract of proit/loss participation account, and which result in proit/loss participation. Interest free banks pay amount of balance equivalent to unit account value to the account holder according to the state of proit/ loss. Payees of interest free banks have no right to demand anything from funds accumulated in these funds (Akın, 1986, pp. 288-299). Returns remaining back from the funds deposited by participation account holders are distributed to account holders after deduction of losses stemming from returns obtained from funds utilized in pools constituted after certain criteria are handled such as their ixed terms and deposit date. When these returns are distributed, certain shares of these returns are hold by participation banks as management share. Special Fund Pools. Participation Banks, according to the 60th article 7th paragraph of the Banking Act, can create special fund account pools for 3 or more months by collecting funds in private accounts in order to be utilized for inancing planned projects or other investments, without the necessity of adhering time or types determined by the Central Bank of the Republic of Turkey. Participation accounts belonging to funds collected in this manner are operated in different accounts independent from other accounts and with different time. No transfer is allowed from the collected funds to other period groups. The related authority or institution has to be informed in 15 days after opening or closing dates, regarding special fund pools. At the end of the period of funding, special fund pools get closed2. III. Fund Utilization Methods Banking activity is mainly not a sector of trade of goods and service. This sector is a service sector. With its operations, it is a sector aiming to utilize fund surplus – collected from entities which have no opportunity or ability to use funds in their hands – for paving the way for operations based on commercial activities, and to take a share from the added value created. Therefore funds collected in order to create added value have surely to be used for production of goods and service. Otherwise, it is obvious that money etc. held in lockboxes would not increase where they stay, and not create added value. The most important difference of participation banks is that they prohibit for themselves certain methods of fund utilization and certain sectors used by other banks when utilizing collected funds. Fund Utilization Methods based on Commerce. The main fund utilization methods of participation banks can be listed under two titles: The irst of them is Fund Utilization Methods based on Commerce. Also deposit banks can use these types of inancing. However there are some points in certain procedures such as handover of money which participation banks pay more attention. The important points here are that it has to be an operation necessarily based on trade of goods or service, and that payment to be made has to be delivered to the irm which sells the goods. Private Funding Support. Participation bank pays the price of goods or services – bought by real entities directly from sellers for personal needs such as vehicle and apartment – in the name of the customer to the seller, with the condition 2 Published in Oficial Journal no. 26333. Banking Regulation and Supervision Agency (BRSA) / Bankacılık Düzenleme ve Denetleme Kurumu (BDDK), article 7, 2006 156 of not to be used in funding of commercial activities, and in return the buyer is charged with a debt (The Participation Banks Association of Turkey, 2008). Financial Rent. Gülten Kazgan also underlined that these inancial institutions acts and function as leasing companies (Kazgan, 1999). In the operation which is called “leasing” today, the person who wants to buy a good demands that this good is bought by the participation bank and rent to this person after the agreement between this person and the participation bank. However it is decided the customer of the participation bank will be the owner of that good after a certain period of rent and of paying rents. In this way, the good with inancial renting is used by the customer demanding inancial renting, and is owned by the bank. At the end of rent period, the ownership is handed over. As investment banks, also participation banks can realize inancial renting operations without founding a separate company. Murabaha: (Installment Sale). Murabaha used in banking is sale of goods with an order of sale in which payment is made some time after delivery of the goods transacted. A customer and a bank sign a pre-contract which proposes that the customer buys a good from the bank. After the contract, upon the customer’s written demand, the bank buys the mentioned good in cash from the seller, and sells it to its customer in accordance with the conditions agreed upon before (Akın, 1986, p. 159). So, participation bank mediates trade, buys the good from the seller in cash, and sells to its customer for the account. Fund Utilization through Proit and Loss Partnership Method Mudaraba: (Venture Capital) Mudaraba is a method of fund utilization used by interest free banks very commonly. One party gives its labor, knowhow and experience (entrepreneur), and the other party gives capital (interest free bank). In this method, real and legal entities present their applicable projects to the bank. The manager accepted and funded by the bank is called “mudarib”, and the person or institution funding or supporting the project is called “Rabbul-mal”. After signing a contract with the mudarib, Rabbul-mal (interest free bank) has to keep ready the amount of capital mentioned in the contract, in accordance with mudarib’s demand. Other than conditions mentioned in the contract, bank has no authority to interfere in transactions realized by the project owner. However in case of emergence of danger of loss because of unplanned and irregular work, the bank can make some initiatives in order to prevent loss. Normally, it can control accounts every time, and demand all formal and informal bookings. Proit obtained at the end of mudaraba operation is shared among RabbulMal guaranteeing funding and mudarib using fund according to the proportion determined before. In case of any loss, this loss is met by Rabbul-mal (Küçükkocaoğlu, 2010, p. 8). Muşareke: (Joint Capital Partnership or Capital Invesment) Muşareke is called “şirketu’l-İnan” in the Islamic Law. While One party, i.e. bank, gives capital, and the other party, i.e. real or legal body demanding fund, gives labor in the mudaraba contract, both of these two parties put forward both their labor and capital in muşareke contract. One or more of ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 Increase % TOTAL SUM Increase % TÜRKİYE FİNANS Increase % KUVEYT TÜRK Increase % Dec. 07 422 March 08 81 119 95 146 441 4,5 June 08 90 11,1 124 4,2 100 5,3 157 7,5 471 6,8 Sep. 08 94 4,4 142 14,5 113 13,0 167 6,4 516 9,6 Dec. 08 100 6,4 143 0,7 113 0,0 174 4,2 530 2,7 March 09 100 0,0 149 4,2 113 0,0 178 2,3 540 1,9 June 09 100 0,0 149 0,0 113 0,0 178 0,0 540 0,0 Sep. 09 100 0,0 152 2,0 120 6,2 178 0,0 550 1,9 Dec. 09 101 1,0 158 3,9 121 0,8 180 1,1 560 1,8 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Documents Against Payment This type of fund utilization method is used for funding of foreign trade. According to the contract signed between participation bank and the party using fund, the participation banks buy documents against payment in cash, and sells to one using fund on account with a higher price. This type of inance technique is mainly based on the method of murabaha (forward sale) (Akın, 1986, p. 290). However, methods and documents used in foreign trade gain importance at that point. Documents are used in foreign trade especially in operations of documented credit. They are documents which assure importer’s custom clearance of goods sent by exporter. Therefore, these documents which make possible that goods entering in customs in the country of exporter are delivered by customs authorities are undertake the ownership of goods as documents with status of valuable papers. It means that a participation bank buys goods abroad in the name of its customer who gave him order, and sells them to its customer. BANK ASYA Table 1. Growth of Branch Numbers, 2007-2009 Increase % “Selem sale” means buying a good on account with another good bought or sold in cash. The bank buys a good by paying its price in cash which is going to be delivered to the bank in a future date agreed upon in the contract between the bank and the seller. A different style of selem sale, as in funding purchase of building, machinery and equipment, can be used also in purchase of consumer durables in case of that conditions are proper in terms of economy. In other words, this inance technique can be used in order to fund industry, trade and agriculture (Akın, 1986, p. 163). According to another deinition, selem is the sale activity which is made with money in cash and goods on account. In selem, type, quality, amount, price, delivery place and date of the product have to be determined in the contract. With the help of selem, goods which will be produced in a future date are sold, and the needed money is obtained. On the other hand, customer buys a good which it will need in a future date. So, both parties meet their needs without using interest (Yılmaz, 2010, p. 14). For example, a farmer which needs money is supported by the bank in terms of capital, and the bank sells the yield in the market. Growth of Branch Numbers. As of the end of 2009, the number of deposit banks founded in Turkey is 32. While 3 of them are based on public capital, 11 of them are based on domestic private capital, and 17 of them are based on foreign private capital, 1 of them belongs to SIDF. Additionally, there are 13 development and investment banks founded in Turkey. When we take also 4 participation banks into consideration, it is seen that the number of banks in Turkey reaches to 49. The number of branches of deposit banks was 8.741 in 2008, and reached to 8.983 with an increase of 2.8 % as of the end of 2009. The number of branches of participation banks was 530 in 2008, and reached to 560 with an increase of 5,7 % as of the end of 2009. 3 public bans excluded, each of 29 private deposit banks has average 223 branches, and each of 4 participation banks has average 140 branches. Looking at the growth rates of the number of their branches from 2008 to 2009, it is seen that the growth rate of branches of participation banks is two times more than deposit banks. The table below shows the position of participation banks within themselves. ALBARAKA TÜRK Selem Sale: (Current Sale of Future Delivery Goods or Future Markets and Sales) IV. Personnel and Branch Structure of Participation Banks Branch Number / Period participants of partnership realize the work, and every partner included ones which does not take part in the work too deserves a certain right according to the rate agreed before. Even if capitals are the same, proit shares can be different, or vice versa. The inance method called muşareke is applied in following manner: Islam Bank takes the responsibility to provide a part of the capital which is demanded by its customer as its partner. And the customer provides the rest of project capital due to its own inancial opportunities and the qualiication of the project. The customer takes the responsibility of management, control and monitoring of the inancial aid because of its expertise. Taking these responsibilities, the customer deserves to take a bigger share of the proit (Küçükkocaoğlu, 2010, p. 10). Growth of Personnel Number As of the end of 2009, totally, 184.204 employees are employed in the banking sector in Turkey. While 167.063 of them are employed in deposit banks, 11.802 of them are employed in participation banks. Personnel number of deposit banks was 166.325 in 2008, and reached to 167.063 with an increase of 0.4 %. Personnel number of participation banks was 11.032 in 2008, and reached to 11.802 with an increase of 7.0 %. Moving from that point, looking at the increase speed of personnel numbers from 2008 to 2009, it is seen that participation banks reached a quietly higher personnel number increase rate than deposit banks. 157 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 Table 2. Employment in the Banking Sector, 2008-2009 V. Evaluation of Sectoral Quantitative Data Turkish Currency Funds Increase % TOTAL SUM Increase % TÜRKİYE FİNANS Increase % Increase % KUVEYT TÜRK BANK ASYA Increase % ALBARAKA TÜRK Period Dec. 07 9215 March 08 1.582 3.554 1.897 2.865 9.898 7,4 June 08 1.684 6,4 3.571 0,5 2.046 7,9 3.020 5,4 10.321 4,3 Sep. 08 1.746 3,7 3.748 5,0 2.233 9,1 3.140 4,0 10.867 5,3 Dec. 08 1.796 2,9 3.806 1,5 2.245 0,5 3.185 1,4 11.032 1,5 March 09 1.817 1,2 3.812 0,2 2.272 1,2 3.173 -0,4 11.074 0,4 June 09 1.859 2,3 3.833 0,6 2.324 2,3 3.200 0,9 11.216 1,3 Sep. 09 1.903 2,4 3.917 2,2 2.400 3,3 3.280 2,5 11.500 2,5 Dec. 09 1.935 1,7 4.074 4,0 2.447 2,0 3.346 2,0 11.802 2,6 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). 158 TOTAL SUM TÜRKİYE FİNANS KUVEYT TÜRK BANK ASYA ALBARAKA TÜRK Table 5. Foreign Currency Funds, 2007-2009 (1.000TL) TOTAL SUM Table 3. Growth of Personnel Number (Participation Banks), 2007-2009 Foreign Currency Funds, 2007-2009 TÜRKİYE FİNANS Actually, Bank Asya Participation Bank has the biggest personnel number and average personnel number. Analyzing participation banks in Yalova, Albaraka Türk Participation Bank has the biggest personnel number, i.e. 14. In deposit banks, average personnel number reached by dividing the total personnel number to the branch number is 167.063/8.983=18,6. The same average is 21 in participation banks. This means that participation banks employ 13 % more employees for branch than deposit banks. KUVEYT TÜRK Albaraka Türk Bank Asya Kuveyt Türk Türkiye Finans Total Sum Total Personnel No./ Average Personnel No. Branch No. for Branch (1.935/101) 19 (4.074/158) 25 (2.447/121) 21 (3.346/180) 19 (11.802/560) 21 Dec. 07 7.943.805 March 08 1.773.148 2.805.072 1.583.839 2.712.776 8.874.835 June 08 1.648.738 3.081.433 1.632.654 2.592.343 8.955.168 Sep. 08 1.781.602 3.094.955 1.727.540 2.840.535 9.444.632 Dec. 08 2.029.617 3.603.487 2.111.414 3.300.252 11.044.770 March 09 2.441.543 4.464.748 2.467.083 3.801.235 13.174.609 June 09 2.528.619 4.705.865 2.561.541 3.861.546 13.657.571 Sep. 09 2.822.325 5.463.422 2.677.973 4.243.509 15.207.229 Dec. 09 3.290.809 5.979.825 2.987.415 4.660.035 16.918.084 2008-2009 62 66 41 41 53 Increase for the Year (%) Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). BANK ASYA Bank Table 4. Collected Turkish Currency Funds in Participation Banks, 2007-2009 (1000TL) ALBARAKA TÜRK As of the end of 2009 (December 2009), the average personnel number for branch in participation banks is as follows: Participation banks showed a quite better performance as of the end of 2009 compared to 2008 in funds of Turkish currency. As of the end of 2009, deposits of Turkish currency reached to approximately 17 billion Turkish Lira after an increase of 53 %. In the same period, the increase of Turkish currency deposits of deposit banks was 14 %. Among participation banks, Bank Asya has the biggest fund of Turkish currency. Bank Asya and Albaraka Türk Participation Bank has the highest increase of performance in 2009. Period 2008 2009 Increase % Deposit banks 166.325 167.063 0,4 Public banks 43.333 44.856 3,5 Private banks 82.158 82.270 0,1 Fund banks 267 261 -2,2 Foreign banks 40.567 39.676 -2,2 Development and investment 5.273 5.339 1,3 banks Public banks 4.146 4.165 0,5 Private banks 794 842 6,0 Foreign banks 333 332 -0,3 Other banks-Total 171.598 172.402 0,5 Participation Banks 11.032 11.802 7,0 Total 182.630 184.204 0,9 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Period Employment in the Banking Sector 6.999.266 March 08 1.795.327 2.398.130 1.679.267 1.783.078 7.655.802 June 08 1.843.318 2.701.868 1.837.144 2.198.136 8.580.466 Sep. 08 1.948.592 2.466.363 1.818.134 2.151.112 8.384.201 Dec. 08 1.955.493 2.239.334 1.957.958 2.012.296 8.165.081 March 09 2.073.177 2.322.446 2.149.807 2.241.740 8.787.170 June 09 2.156.367 2.706.448 2.205.278 2.060.746 9.128.839 Sep. 09 2.146.904 3.107.923 2.311.492 2.150.941 9.717.260 Dec. 09 2.173.836 3.156.753 2.370.842 2.222.455 9.923.886 2008-09 11 41 21 10 22 Incr. for the Year (%) Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 Increase % 2009 Increase % 2008 2007 Increase Rate Table 8. Funds Utilized by Participation Banks (1000TL) TOTAL SUM When igures are compared as of the end of 2008 and 2009, it is seen that participation banks have three times bigger percentage of increase than deposit banks on the percentage basis in terms of rate of increase, even if participation banks have quite lower levels than deposit banks in terms of nominal values of Turkish currency funds deposit, foreign currency funds deposit, and total Turkish-foreign currency deposit. As of the end of 2009, while total deposit of 32 deposit banks is 507 billion TL, 4 participation banks have approximately 27 billion TL of total funds collected. While deposit banks have a 12 % deposit increase from the end of 2008 to the end of 2009, participation banks increased their funds by 40 % in the same period. Participation banks taken into account, total fund + deposit in Turkey reaches 534 billion TL as of the end of 2009. Increase rates of loan-fund utilization from the end of 2007 to the end of 2008 of participation banks and other banks are at very close, 29% and 30 % respectively. According to the same igures as of the end of 2009, it is seen that participations banks reached a quite higher increase rate compared to other banks. As of the end of 2009, while other banks increased their loans only by 4 %, participation banks have and increaser rate of 26 %. This situation shows also parallelism to increase rates of fund and deposit. It is seen that Bank Asya and Türkiye Finans have close igures of total and increase, and take the lead among participation banks. Another point which attracts attention is that Albaraka Türk which has the lowest nominal igures among participation banks in terms of fund utilization showed a big increase of high rates in the third and fourth quarters of 2009, and got quite close to Kuveyt Türk Participation Bank. TÜRKİYE FİNANS Dec. 07 14.943.071 March 08 3.518.475 5.203.202 3.263.106 4.495.854 16.480.637 June 08 3.492.056 5.783.301 3.469.798 4.790.479 17.535.634 Sep. 08 3.730.194 5.561.318 3.545.674 4.991.647 17.828.833 Dec. 08 3.985.110 5.842.821 4.069.372 5.312.548 19.209.851 March 09 4.514.720 6.787.194 4.616.890 6.042.975 21.961.779 June 09 4.684.986 7.412.313 4.766.819 5.922.292 22.786.410 Sep. 09 4.969.229 8.571.345 4.989.465 6.394.450 24.924.489 Dec. 09 5.464.645 9.136.578 5.358.257 6.882.490 26.841.970 2008-09 37 56 32 30 40 Incr. for the Year (%) Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Funds Utilized, 2007-2009 KUVEYT TÜRK TOTAL SUM TÜRKİYE FİNANS KUVEYT TÜRK BANK ASYA Period ALBARAKA TÜRK Table 6. Total Funds Collected, 2007-2009 (1000TL) Turkish 232.488 291.452 25 333.090 14 Currency 7 Foreign 124.496 162.032 30 174.168 Currency Total 356.984 453.485 27 507.258 12 Participation Turkish 7.944 11.045 39 16.918 53 Banks Currency 6.999 8.165 17 9.924 22 Foreign Currency Total 14.943 19.210 29 26.842 40 Deposit + Turkish 302.497 350.008 16 Participation Currency Banks 170.197 184.092 8 Foreign Currency Total 371.927 472.695 27 534.100 13 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). BANK ASYA Bank Asya is the leading participation bank with an amount of 9.1 billion Turkish Lira; In terms of total funds collected as the end of 2009. Türkiye Finans, Albaraka Türk and Kuveyt Türk participation banks follow Bank Asya respectively. As of the end of 2009, total funds collected by participation banks reached to approximately 27 billion Turkish Lira, after an increase of 40 % compared to the end of 2008. Figures of deposit banks and participation banks are shown below which facilitates to make a comparative analysis between them. Deposit Banks ALBARAKA TÜRK Total Funds Collected, 2007-2009 Table 7. Fund Distribution of Participation and Deposit Banks, 2007-2009 (Million TL) Period A similar case to Turkish currency funds is also valid for foreign currency funds. Among participation banks, Bank Asya has the biggest fund and the highest increase of performance of foreing currency in 2009. Participation banks showed a quite better performance compared to deposit banks in terms of foreign currency funds. As of the end of 2009, Turkish currency deposits of participation banks reached to approximately 10 billion Turkish Lira after an increase of 22 % compared to the end of 2008. Dec.07 15.332.940 Mar.08 3.310.810 5.366.644 3.740.426 4.888.801 17.306.681 12,9 Jun.08 3.451.821 5.697.261 3.998.918 5.034.674 18.182.674 5,1 Sep.08 3.565.823 6.065.407 4.240.254 5.384.245 19.255.729 5,9 Dec.08 3.716.977 6.253.160 4.237.341 5.526.380 19.733.858 2,5 Mar.09 3.716.108 6.496.048 4.276.045 5.972.382 20.460.583 3,7 Jun.09 3.865.036 6.850.278 4.218.855 6.265.355 21.199.524 3,6 Sep.09 4.216.317 7.469.157 4.809.944 6.692.911 23.188.329 9,4 Dec.09 4.675.617 8.221.427 4.904.932 7.109.233 24.911.209 7,4 2007-2008 Increase for the Year (%) 29 2008-09 26 31 16 29 26 Increase Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). 159 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 Table 9. Distribution of Other Banks’ Loans, 20072009 (1000 TL) Loan Type / Year 2007 2008 2009 DIRECTED LOANS Agriculture 7. 480.838 9.834.008 11.490.009 Real Estate 104.980 83.438 0 Vocational 3.227.483 3.781.739 4.476.772 Maritime 0 0 6.105 Tourism 1.975 3.240 232.851 Other 7.008.740 8.751.405 9.779.776 INDIRECTED 261.173.596 341.407.149 353.419.248 LOANS TOTAL 278.997.612 363.860.979 379.404.761 Total Increase for the 30 % 4% Year (%) Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Collected as of 31.12.2007-2008-2009 from the table called “Loan Distribution according to Cities and Regions” Growth of Net Proit 82.273 15,5 219.586 41,4 107.392 20,3 120.880 22,8 530.131 105.626 15,0 301.281 42,7 127.133 18,0 171.388 24,3 705.428 9 23,8 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Total proits increased by 23 % from 2007 to 2008, and by %8,94 from 2008 to 2009. Bank Asya has the biggest share in total proitability of the sector which is around 38,9 %. Türkiye Finans follows it with a percentage of 23,8, ant two other participation banks follow them with close rates to each other, i.e. circa 18-19 %. Looking at deposit banks for the same period, on the TL basis, their proit decreased by 12 % from 2007 to 2008, and reached to 18,5 billion TL in 2009 160 Total Yearly % 53.982 15,2 142.100 40,0 83.190 23,4 75.957 21,4 355.229 Increase % Table 12. Growth of Asset, 2007-2009 (1000TL) ASSET PERIOD 30.300 20,0 52.655 34,8 44.657 29,5 23.697 15,7 151.309 TOTAL SUM 136.242 21,0 246.529 38,1 104.086 16,1 160.633 24,8 647.490 23 TÜRKİYE FİNANS 91.058 20,3 161.642 36,1 84.743 18,9 110.866 24,7 448.309 Looking at the table regarding the asset growth, it is seen that participation banks increased their asset in 2008 more than in 2007. They made a total increase of 1.4 billion TL. And in 2009, they reached an increase rate of 58 %. 2009 was not so bright for deposit banks in terms of asset. While deposit banks increased their asset only by 12 % in 2008 on TL nominal basis, it means that total equity decreased by 15 % on Dollar basis. Using the same exchange rate, participation banks increased their equity by % 20 on Dollar basis. Participation banks maintained their high increase of asset also in 2009 even if not the same percentage. As of the end of 2009, compared with 2008, total equity increased to 4,420 billion TL with an increase rate of 19 %. In the same period, 32 deposit banks increased their asset by 30% and it totally reached to 93,833 billion TL. KUVEYT TÜRK 58.540 21,1 99.599 35,8 47.909 17,2 71.957 25,9 278.005 19,1 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). BANK ASYA 27.562 22,6 37.339 30,7 20.179 16,6 36.682 30,1 121.762 38,9 Net Proit/Loss for the Year, 2007-2009 2007 2008 Increase 2009 Increase Deposit Million TL 13.468 11.852 %-12 18.490 %56 banks Million 11.617 7.788 %-33 12.432 %60 Dolar ALBARAKA TÜRK Percent of Yearly Increase TOTAL SUM % Share in Total Proit TÜRKİYE FİNANS Share in Total Proit% KUVEYT TÜRK Share in Total Proit% BANK ASYA Share in Total Proit% NET PROFIT/Yearly Cumulative ALBARAKA TÜRK 527.382 18,1 Table 11. Net Proit/Loss of Deposit Banks for the Year, 2007-2009 Growth of Asset Table 10. Growth of Net Proit, 2008-09 (1000TL) Dec. 2007 March 08 June 08 Sep. 08 Dec. 08 March 09 June 09 Sep. 09 Dec. 09 Average after an increase of 56 % from 2008 to 2009. While deposit banks have a proit increase of 37 % from 2007 to 2009 on TL basis, participation banks increased their proit by 34 % from 2007 to 2009 on TL basis. In terms of average proit per bank, deposit banks have too high igures compared to participation banks naturally. However it is also obvious that average scales, branch numbers and history of deposit banks are above participation banks. Dec.07 2.363.811 Mar.08 529.051 891.195 408.762 624.274 2.453.282 3,8 Jun.08 560.400 1.256.762 629.502 659.549 3.106.213 26,6 Sep.08 592.547 1.318.805 666.333 698.458 3.276.143 5,5 Dec.08 638.102 1.403.692 685.679 1.001.456 3.728.929 13,8 58 Mar.09 633.735 1.456.785 730.336 1.027.663 3.848.519 3,2 Jun.09 658.373 1.547.360 763.369 1.088.424 4.057.526 5,4 Sep.09 687.954 1.626.760 787.571 1.147.336 4.249.621 4,7 Dec.09 710.666 1.707.894 807.312 1.193.692 4.419.564 4 19 Share 16,1% 38,6% 18,3% 27,0% 100,0% inn Dec.09 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 Two with the highest asset among participation banks are irst, Bank Asya and second, Türkiye Finans. These two participation banks own 65,6 % of total asset. And Kuveyt Türk and Albaraka together own 34,4 % of total equity. Table 13.Equity Growth of Deposit Banks,2007-09 EQITY OF OTHER BANKS, 2007-2009 2007 2008 Increase Deposit Million 64.533 72.061 %12 Banks New TL Million 55.666 47.352 %-15 Dollar 2009 93.833 Increase %30 63.089 %33 Bank Asya has the biggest asset among participation banks, which is followed by Türkiye Finans. These two participation banks have 60,4 % of total assets of participation banks. Kuveyt Türk and Albaraka together have 39,6 % of total assets. Table 15. Growth of Total Assets in Deposit Banks, 2007- 2009 ASSETS 2007- 2009 2007 2008 2009 Million New 542.293 682.937 26 771.512 13 TL Million Dollar 467.776 448.769 -4 518.733 16 Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Deposit Banks Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). Growth of Total Assets Dec. 07 March 08 June 08 Sep. 08 Dec. 08 March 09 June 09 Sep. 09 Dec. 09 Share in Total Increase % Table 16. The Shares of Participation Banks within the Sector Total Yearly Increase TOTAL SUM TÜRKİYE FİNANS KUVEYT TÜRK BANK ASYA ALBARAKA TÜRK Total Assets Period Table 14. Growth of Total Assets in Participation Banks, 2007- 2009 (1000TL) 19.435.082 4.224.371 7.003.186 4.408.024 5.852.389 21.487.970 10,6 4.255.003 7.867.730 4.858.169 6.250.086 23.230.988 8,1 4.439.465 7.609.639 4.953.797 6.451.095 23.453.996 1,0 4.789.108 8.108.129 5.768.034 7.104.156 25.769.427 9,9 33% 5.368.854 9.119.818 5.896.984 7.890.309 28.275.965 9,7 5.602.438 9.821.492 6.223.879 7.987.880 29.635.689 4,8 5.909.983 11.111.369 6.439.437 8.363.902 31.824.691 7,4 6.414.914 11.608.955 6.904.526 8.699.643 33.628.038 5,7 30% 19,1% 34,5% 20,5% 25,9% 100,0% Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). When we look at the table of growth of assets, it is seen that participation banks provide in 2008 a better increase of asset than in 2007. Participation banks increased their total assets 6,3 billion TL and reached 33 % increase rate in this year. In 2008, deposit banks increased their total assets 26 % on TL nominal basis, and decreased 4 % on Dollar basis. Applying the same parity to the igures of participation banks, participation banks increased their total assets 1 % on Dollar basis in the same period. Participation banks maintained a similar rate of asset increase also in 2009. They increased Their total assets reached to 33,628 billion TL as of the end of 2009 with an increase of 30 % in 2009. In the same period, total assets of 32 deposit banks reached to a deposit of 775,512 billion TL with an increase of 13 %. Ratio in the sector Source: Collected from data provided by (BAT, The Bank Association of Turkey, 2008) (BAT, The Bank Association of Turkey, 2009) (BAT, The Bank Association of Turkey, 2010) (PBAT, The Participation Banks Association of Turkey, 2010). VI. Conclusions Participation banks, with their old name Special Finance Houses, are institutions collecting funds similar to deposit through private current accounts and accounts giving right to proit/loss participation, and utilizing funds through methods such as production support, partnership of proit and loss, leasing, document against payment. In Turkey, the foundation of these institutions has been allowed since 1984. Their number which has increased to 6 decreased to 4 eventually parallel to the consolidation of deposit banks. However growth of volume and branch number in the inance sector especially in the last years is also extremely valid for these institutions. Their share is small today in total sector but it grows in a stable manner with their higher growth rate than other banks. In 2001, participation banks had total asset amount of 2,4 billion TL which meant a share of 1,08 % in the total assets of the sector. These amounts and shares were 7,3 billion TL and 2,34 % in 2004, 13.730 billion TL and 2,83 % in 2006, 25.769 billion TL and % 3,64 in 2008, and 33.628 billion TL and 4,18 % as of the end of 2009. These institution which are subject to most limitations of general arrangements and loan limitations in the Banking Act no. 5411 differ from deposit banks at most in terms of that they don’t undertake the risk of interest. Because these kinds of banks don’t undertake the risk of interest which is one of 161 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 the greatest risks which have to be managed in banking sector, we can talk about an asset-liability balance which is less sensitive to inancial crisis. However not to undertake the risk of interest, in these kinds of banks, differently from deposit banks, eliminates the opportunity to obtain sudden and high institutional proit based on interest rate difference. Putting three public banks aside, while 29 private deposit banks have 223 branches on an average, each of 4 participation banks has 140 branches on an average. However in terms of the increase rate of branches from 2008 to 2009, it is seen that participation banks reached a two times bigger increase rate of branch numbers than deposit banks. The average rate of “total personnel number/branch number” is 21. This means that participation banks employ 13 % more personnel than the average of deposit banks per branch. Setting 2007 apart, and comparing 2008 and 2009 igures, it is seen that participation banks have three times bigger percentage of increase than deposit banks on the percentage basis in terms of rate of increase, even if participation banks have quite lower levels than deposit banks in terms of nominal values of Turkish currency funds deposit, foreign currency funds deposit, and total Turkish-foreign currency deposit. While it is seen that increase rates of loan-fund utilization from the end of 2007 to the end of 2008 of participation banks and other banks are at very close, 29% and 30 % respectively, it draws attention that participations banks reached a quite higher increase rate compared to other banks according to the igures as of the end of 2009. As of the end of 2009, while other banks increased their loans only by 4 %, participation banks have and increaser rate of 26 %. Total proits increased by 23 % from 2007 to 2008, and by %8,94 from 2008 to 2009. Looking at deposit banks for the same period, on the TL basis, their proit decreased by 12 % from 2007 to 2008, and reached to 18,5 billion TL in 2009 after an increase of 56 % from 2008 to 2009. While deposit banks have a proit increase of 37 % from 2007 to 2009 on TL basis, participation banks increased their proit by 34 % from 2007 to 2009 on TL basis. It is seen that participation banks increased their asset in 2008 quite more than in 2007. In 2009, they made a total increase of 1.4 billion TL, and reached an increase rate of 58 %. 2009 was not so bright for deposit banks in terms of asset. As of the end of 2009, compared with 2008, their total equity increased to 4,420 billion TL with an increase rate of 19 %. Proportioning equities to total assets, and therefore to total liabilities, the result rate is 13 % for participation banks consolidation, while it is 12 % for deposit banks. However this rate has not to be confused with the Capital Adequacy Ratio which takes place in Basel regulations. As it seen on the table by comparing to the 2009 year’ data the total assets grew %22,4, the collected funds grew % 26 and the used credits grew %36 so those ratios which systemically maintains its development though economic crises in the world. Thus that given results also all support our thesis in this paper. Meanwhile, the participation banks also have some problems for instance they have needed such as the Interbank systems which provides urgent proper credits for the depository banks in the short run. Whereas, this situation negatively hinders the participation banks performance. Because they are sharing nearly all of their funds for the creditors or investors who uses them for leasing, production, sales, trade, export and imports which composed the real sector of the economy. For that reason it is very vital interest for the participation banks forming the similar interbank system which would increases their customers and operational transactions, too. For instance, the establishment of guaranty insurance system among the participation banks positively inluenced their expansion in the market, in 2010 data, justiied also our arguments in this article. Nevertheless, the depository banks they are the corporations so their rulers and executive bodies are responsible fully form their operations and in any case, the state quarantined their possible bankruptcy situations, but in the Participation Banking systems there was no such kind of full responsibility or insurance system in their inancial credit operations because of joint losses or gains. In both theory and practice there is a legal gap that is why it leaded to some corruptions and abuses, the participation banks and companies in Turkey and European countries, too. This problem has been partially solved yet. Those banks and companies forced to adopt the status and the legal structural establishment of banks and companies. Some of them applied to be part of the Capital Stock Exchange Market. That is why they could be checked and controlled by the state audit system. There are 300 the Participation Banks in the world. They collected approximately 700 billion$ funds and they don’t only operate in the Asian countries but also in the western countries, too(Tevik Bilgin). It would not be exaggerations to compare the micro credit systems with the participation banking systems which helps internalizations -somehow very close to the western banking systems in the Asian societies as the developments of the establishment of inancial institutions in their economic order. Table 18. The GROWTH OF PARTICIPATION BANKS March 2011 Table 17. THE PARTICIPATION BANKS in TURKEY (March 2011) Total Assets Collected Total funds Used Funds Net proits- 3 months Credit Customers number Owners of Credit cards The Numbers of branches Numbers of Personnel 45 billion TL= 28 billion $ 34 billon TL= 21.12 billion$ 33 billion TL=20.5 billion$ 169 million TL=105 million $ 911 thousand 793 thousand 633 12703 (December 2010) Participation Banks D e p o s i t o r y Total Banks 1000$ Total Funds 21.12billion$ 361billion$ 382.12$ Credits 20.5billion$ 330billion$ 350.5$ Assets 28billion$ 622billion$ 650$ Banks Numbers 4 44 48 9677 10.210 Branches Numbers 633 Sources: Güngör Uras- BRSA, Milliyet Newspaper. Sources: Zaman Newspaper, 19 May 2011, p.8, and BRSA 162 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2011. No 5 By Comparing both depository banks and participation banks in Turkey both also improves but the latter progress more in the medium term the Participation Banks’ share in the Turkish Financial Markets, would rise from %4.5 to %10 said the head of Audit of Union of Bank Executive Body in Turkey is Tevik Bilgin. (Güngör Uras, Ibid) Hayrettin Karaman is the advisor of participation banks who related to the growth of -murabaha- installment sales transactions as something very close to the capitalist banking systems individual or customer based consumer credits. (http://www.hayrettinkaraman.net/kitap/ekonomi/0060.htm) But he says in this system inlationary depreciation value and proit values added over the price of the goods delivered. In practice there is so close with the cost of the credit interest based banking systems with the participation banks. But the intentions of the dealers here not to get the interest cost from the traders.( http://www.hayrettinkaraman.net/yazi/ hayat/0300.htm) Bernard Lewis, underlined that though the nonwestern societies very much accustomed to free trade regimes more than western societies by forming a great single uniform market culture during the Middle Ages, but later on, they were not able to overcome or comprehend or compete with the dynamism of the western industrial capitalist market economy. Furthermore, the paper based monetary economy’s inlationary, interest problem and other iscal or national market policy at there were not able to be developed a inancial banking system with their own cultural internalization like Max Weber Protestan Ethics of Capitalism(Bernard Lewis, Middle East, 7. Edition pp.199-225). Upon that, Güneri Akalın, it is problem of eastern societies that they don’t know how to price the time in the economic activities(Interview). In addition, Hayrettin Karaman stressed the fact that there is no problem in transactions of real goods in the commercial bargaining -like barter economy- in somehow but the inlation problems for the future markets and forward sales which punish sellers or creditors(Interview, Tvnet, 2010 November). At last, we should point out that in the world there is a tendency to lower high level the interest based inancial approaches or mentality to increase the economic eficiency in the global, regional and national level in the postkeynesian or Maastrict era. In this current world inancial crises, the zero level interest approaches may contribute more in production and investment in the world economy. References Ahmad, A., Humayoun, A. A., & Hassan, U. u. (2010). An Analysis of Functions Performed by Islamic Bank: A Case of Pakistan. European Journal of Social Sciences , 17 (1), 7-12. Akalın, G.(2009) Interview about Banking Systems, March 2009, Istanbul Aydın University. Akın, C. (1986). 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(2011), Milliyet Newspaper, http://ekonomi. milliyet.com.tr/katilim-bankalari-faizsiz-bankacilikinans-sisteminin-bir-parcasioldu/ekonomi/ ekonomiyazardetay/19.05.2011/1392052/default.htm (19.05.2011) Yılmaz, O. N. (2010). Faizsiz Bankacılık İlkeleri ve Katılım Bankacılığı. Antalya, Turkey: Türkiye Katılım Bankaları Birliği. Zaman Newspaper,(2011) “The three proposals that will add power to the power of participation banks from BRSA”,http://www.zaman.com.tr/haber. do?haberno=1136055 , 19.05.2011 The article has been reviewed. Received in April, 2011; accepted in June, 2011.