KTPB looks to the future

As chief executive of Kuveyt Turk Participation Bank (KTPB), a subsidiary of Kuwait Finance House, Ufuk Uyan has successfully steered Turkey’s premier Islamic bank through its digital transformation and the Covid-19 pandemic, in line with president Recep Tayyip Erdogan’s policy of a greater involvement by the sector in the economy.

Q. What has been the impact of the pandemic on KTPB’s activities?

A: Our strategy for managing the impact of the pandemic is based on liquidity and non-performing loans management through an optimal risk hedging strategy. We adopted this strategy before the pandemic, which allowed us to adapt much faster to the extraordinary conditions in 2020.

Our priority was to protect the health of our employees and customers, which meant restructuring our branches and accelerating online banking to ensure business continuity.

We supported our customers through payment holidays, waiving fees and profit shares. We restructured Tl1.15bn ($130m) of financing for customers requesting flexible maturities for their arrangements. We also disbursed Tl110m in new financing from the Turkish Credit Guarantee Fund stimulus package and provided Tl3.5bn of new financing for the real economy.

Q: What is your outlook for Islamic banking in Turkey?

A: The market share of participation banking assets of the total banking sector at the end of 2020 stood at 7.2%. Participation banks increased their assets by 54% in 2020, while the growth for the total banking sector was 36%. This year, the Participation Banks Association of Turkey adopted a target of 15% market share by 2025.

The upward growth trajectory of the sector and sukuk (Islamic bond) issuance in Turkey will continue to increase to benefit from the excess liquidity and expectation of a price increase in the market. The sector is on track to gain more market share in the medium term.

Q: KTPB is a regular issuer of sukuk. What is the rationale behind your latest issuance in September?

A: We issued a $350m sustainable Basel III-compliant Tier 2 sukuk, which was priced at a coupon of 6.125% per annum — the lowest price of a Tier 2 issuance since 2017 in Turkey, reflecting the bank’s strong fundamentals and positive market sentiments.

The issuance was the first sustainable Tier 2 sukuk issued in Turkey and the world’s first regulatory capital Tier 2 ESG (environmental, social and corporate governance) sukuk. We take the necessary action to maintain the bank’s capital asset ratio at a certain level as per the Banking Regulation and Supervisory Agency’s requirements. The proceeds will be used to finance green and social projects in accordance with KTPB’s sustainable finance framework.

Demand for the certificates was robust, with the issuance oversubscribed 12 times and the order book reaching $4.2bn. In essence, Islamic banks are sustainable banks; we adhere to Islamic principles not to exhaust nature but to preserve it. The proscription of usury is a defining sustainability factor and ESG criteria is a built-in characteristic of Islamic banks.

KTPB has a strong portfolio of customer deposits with an increasing trend to sustainability, now accounting for about 81% of the bank’s total assets.

Q: What are KTPB’s priorities for 2021/22 in terms of market segments and products?

A: KTPB recorded the second-best growth performance among the top 20 Turkish banks in the first half of 2021, with an 18% growth in financing that we hope to increase to 25% by year-end.

Our focus is to increase financing of the real economy by diversifying our existing portfolio in agriculture, tourism and renewable energy. We will continue to finance corporates and small and medium-sized enterprises (SMEs), including their foreign exchange needs in cross-border trade by increasing our volumes and ceilings.

On the retail side, we recently launched the ‘on-site financing’ product, which is a digital consumer finance product that allows our customers to pay at contracted e-commerce sites and dealers, with a maturity option of up to 36 months.

Q: KTPB is a pioneer in bank digitisation in Turkey. Do you have any new developments in this respect?

A: The pandemic required us to closely monitor changing customer expectations and digital developments. In 2020, we launched: XTM, which combines branch services with the practicality of ATMs; CebimPOS, a mobile point-of-sale app aimed at SMEs; and online finance.

We launched the most comprehensive application programming interface market platform in the Turkish banking sector, including a payment with QR code service on e-commerce sites, as well as TradePlus, which gives customers instant access to investment instruments such as mutual funds, stocks, foreign exchange, gold and silver.

This year, we started accepting customers via video calls without visiting our physical branches. Digitisation is a core component of our 2021-25 strategy, with the aim of using data in the most effective way in all our decision mechanisms.