Why Erdogan Aims to Seize Stake in No. 2 Turkish Bank

(Bloomberg) -- Turkish President Recep Tayyip Erdogan has already brought the central bank under his control, ousting the governor and installing a successor to drive interest rates lower and try to turbo-charge economic growth. Now he’s making a play for the country’s biggest private lender, Turkiye Is Bankasi AS, as he pushes to unleash credit in the economy. The problem? Isbank is part-owned by the main opposition party, not that that’s likely to get in the Turkish leader’s way.

1. How does a political party own a stake in a bank?

It was bequeathed. The Republican People’s Party, or CHP, received its 28% shareholding in the will of Mustafa Kemal Ataturk -- the father of modern Turkey who created the CHP. Ataturk established Isbank in the aftermath of World War I as the country’s first national bank, with the aim of helping the push for infrastructure and financial stability. CHP receives no financial benefit from the shares, since Ataturk’s will stipulated that the dividends go to the Turkish Language Association and Turkish History Association.

2. What’s Erdogan’s complaint?

He contends it’s inappropriate for a political party to hold such a shareholding and to have four seats on the bank’s board. His administration has been mulling a way to transfer the shares to the Treasury since 2015.

3. What do Erdogan’s opponents say?

They see this as another move to assert greater control over the financial system, as well as neuter the opposition. The push for cheaper credit comes as businesses struggle to repay foreign-currency debt following a monumental depreciation of the currency, which saw the lira lose about one-third of its value. State-owned banks have opened the taps in terms of lending, but their commercial peers -- eager to keep bad loans under control in a sluggish economy -- have been more reticent. A part-nationalized Isbank might come under more pressure to join the campaign.

4. How important is Isbank?

It’s Turkey’s second-biggest bank and is one of the top 10 shares on the country’s benchmark stock index. Isbank also owns substantial stakes in more than a dozen major companies including Sisecam, Europe’s biggest maker of flat glass. Isbank Pension Fund is its largest shareholder, with 39%, while about 33% of stock, according to Bloomberg data, is held by foreign investors including Blackrock, Vanguard and Allianz. Isbank’s market value, which exceeded $20 billion in 2010, has dropped to $5.6 billion, partly because of speculation over its fate. The shares fell as much as 3.9% on the day when Erdogan rekindled his plan for a partial takeover in February.

5. Will foreign investors stop the move?

Probably not. They’ve grown accustomed to Erdogan’s increasing sway over the economy and his drift from free-market principles. That’s been particularly evident since the currency crisis in 2018 triggered by an overheating economy pumped with credit ahead of a general election and by deteriorating relations with the U.S. Recent government measures have included price controls, banning the use of foreign currency in most contracts, restrictions on overseas swaps transactions (used by foreigners to short the lira) -- and forcing lenders to extend more credit. His unorthodox theory that high interest rates stoke inflation led to the ouster of the central bank governor in July and the slashing of the benchmark policy rate by more than half by the successor.

6. What’s the political backdrop?

Erdogan faces re-election in 2023. His critics say he’s running an increasingly authoritarian regime, curtailing freedoms and muzzling political opponents through court cases while extending his hold over the economy. He has raised his profile on the international stage, sparring with both the U.S. and Russia while standing up for Turkey’s interests in Syria, Libya and Cyprus. A missile deal with Russia has angered Turkey’s fellow NATO members, raising the prospect of U.S. sanctions that could plunge the country into renewed economic turmoil.

7. What will the opposition do if it loses the shares?

Take the government to court, probably. Ozgur Ozel, the CHP whip, told Bloomberg News that seizing the stake would be illegal and unethical.

The Reference Shelf

• QuickTakes on Turkey’s expanding military footprint, its natural gas ambitions, its feuds with the U.S. and Erdogan’s economic theories.
• Fallout from the economic crisis: secondhand car market goes crazy.
• Turkey culls bank fees in latest bid to fire up credit.
• Bloomberg Economics on Turkey.

To contact the reporter on this story: Asli Kandemir in Istanbul at akandemir@bloomberg.net

To contact the editors responsible for this story: Benjamin Harvey at bharvey11@bloomberg.net, Grant Clark, Stefania Bianchi

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