Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Western EuropeSeptember 28 2010

A simple plan

Is Bank, Turkey's largest private bank, has an unconventional boardroom make-up and an unusual business portfolio. However, it is the bank's focus on conventional banking that has seen it emerge from the crisis in good health and in a position to expand beyond its domestic borders. Writer David O'Byrne
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
A simple plan

Turkey's Is Bank is a conservatively run company ripe for a major overhaul in its ownership structure and ready for a cash windfall from spinning off its numerous industrial subsidiaries, according to many analysts.

Indeed, few banks can boast a board controlled jointly by its employee pension fund (which holds 41.5% of equity) and a political party - the Republican People's Party, Turkey's sole political party until the mid-1950s - that holds 28.1%, together with a free float of 30.1%.

Equally, few banks can boast a portfolio of industrial holdings that makes Is Bank one of the biggest manufacturers of glass and glass products in eastern Europe, the eastern Mediterranean and the Middle East.

Stability counts

However, Is Bank chief executive officer Ersin Özince says it is precisely this unusual structure and conservative outlook that have given his bank the resilience to come through the global financial crisis demonstrating robust growth, and that are serving to help it position itself to become a major regional bank too.

"I know who my controlling shareholders are today and I know who they will be in the future. They hold 70% of the bank and they're not planning to sell, so we have never needed to go in for window dressing to impress analysts. We do conventional banking. That's very important - especially in the kind of economic turmoil we have just seen," says Mr Özince.

Rating concern

However, Mr Özince admits to a slight bitterness that Is Bank's ownership is not looked on favourably by some of the international ratings agencies.

"Some agencies rate our competitors one notch higher than us because they have major foreign shareholders. If you look at recent events, it should be the other way round," he says. "You should judge a bank by its values, not just by its value."

Is Bank's approach helped it survive the turmoil in the Turkish banking sector a decade ago when more than 20 of the country's 80-plus banks went under, as well as helping it survive the recent global crisis in robust health.

Mr Özince, however, concedes that the strong performance of Turkey's banking sector in the recent crisis - when not a single bank required state help - is down to a particularly strong regulatory regime introduced in the wake of the Turkish sector's earlier problems.

"Turkey is the only emerging market outside Europe that has a full commitment to the principles of Basel II [international banking regulations], so the [Turkish] banking regulator is fully autonomous of the government and no bank has a capital adequacy ratio of less than 15%," he says.

Is Bank's ownership has not harmed its position in the Turkish market. As of the second quarter of this year, Is Bank remains Turkey's biggest private bank in terms of assets - with 14.2% of the sector total and 14.7% of total deposits.

And with 13.2% of the market, Is Bank's loan book is currently one of the biggest in Turkey as well as boasting the highest loan portfolio growth of any Turkish bank over the first half of this year.

Spreading out

As well as building a stable foundation at home, Mr Özince also hopes that Is Bank's structure and approach can help win it business in new markets.

"The markets around Turkey are growing and maturing very rapidly and there are some countries where our kind of conventional banking can be successful.

"We are very interested in both Russia and the Middle East," he says, singling out Syria and Iraq as particularly interesting locations, along with other Balkan and Caucasian countries.

Is Bank's strategy will be a simple one, Mr Özince explains: buy a small local bank, establish a presence and grow organically by concentrating on what he describes as the bank's core capability - providing good conventional banking services aimed at serving the needs of the bank's customers.

"I was asked by the Iraqi deputy president what we planned to do in his country, and I told him that our aim was to do banking for Iraq and for the Iraqi people," says Mr Özince.

cp/97/RTR_Ersin_Ozince.jpg

Ersin Özince, Is Bank's chief executive officer

Moving into Russia

Is Bank's first target for expansion, though, is set to be Russia, with Mr Özince confirming the planned purchase of a small retail bank there.

"We hope to finalise the deal before the end of the year - possibly even before the end of the third quarter. The final agreements are now being negotiated," he says.

The rationale for this push is simple, with Russia representing a logical target both as a market for Is Bank's brand of traditional customer-focused banking and from the broader perspective of bilateral economic relations.

"The size and the maturity of the Russian market makes it a priority. Business relations between Turkey and Russia are increasing on a daily basis and our glass subsidiary has serious investments [in Russia]," he says, referring to Sisecam, Turkey's biggest glass-maker, in which Is Bank holds a 64% stake.

With eight production facilities in Russia and eight more around Europe and the Middle East, Sisecam is already a major regional player. Mr Özince points out that the five plants in Russia operated by the group's glass-packaging subsidiary, Anadolu Cam, last year recorded a higher turnover than the company's Turkish operation achieved in its whole 75 years of existence.

Glass spinning

Given Sisecam's size, would it not make sense for Is Bank to cash in on what is clearly a non-core asset, or at least sell off a stake to a major international glass-maker and benefit from the obvious synergies and economies of scale?

A spinning-off of non-core assets could also be applied to Is Bank's other major non-financial services participation, an 18.63% stake in Turkey's third largest mobile phone operator, Avea, and to some of its extensive portfolio of financial-services subsidiaries.

"We are doing that [spinning off assets] in line with market realities - albeit not as fast as the analysts would like," says Mr Özince. "We sold off our stake in Turkish Pirelli and we are about to sell our stake in Anadolu Insurance. In my view, we do need to reduce our stake in our glass group, preferably by public offering. But that doesn't mean we should sell control of the group."

He adds that, as Sisecam is already a major regional player, busy expanding into new markets, it has no need of an international partner.

Hanging up on Avea?

Loss-making mobile operator Avea, however, is a different story and Mr Özince admits that Is Bank may be ready to call time on its decade-long investment in mobile telephony, which began as a joint venture with Telecom Italia and now sees the bank as minority partner to Turk Telekom, which is controlled by the Saudi Oger corporation.

Although Avea boasts 11 million subscribers, these have been acquired at the expense of undercutting the established opposition, and the company is a perennial loss-maker.

"We are looking at different alternatives and if we receive any propositions, we will consider them, but until then we are happy to wait for the company to improve its results," says Mr Özince.

Was this article helpful?

Thank you for your feedback!

Read more about:  Western Europe , Turkey