Holding group agrees to give up ownership of two Turkish banks

Istanbul – Turkey’s bank watchdog said yesterday it had resolved a closely watched struggle with holding company Cukurova over ownership of troubled banks Pamukbank and Yapi Kredi and the firm’s debt to them. The resolution of the long-running battle between the regulator and the Cukurova group is seen by some analysts as key to Turkey’s hopes of winning the next $1.6 billion payout from a $16 billion IMF loan pact that demands further reform of a fragile banking system. «To see that the watchdog and Cukurova have agreed is positive for the markets and relations with the International Monetary Fund,» said Akin Tuzen at SSSB in London. Under the deal, Cukurova will eventually pull out of banking, giving up its claim to Pamukbank and pledging to sell its holding in Yapi Kredi to a strategic partner within three years. Yapi Kredi shares soared 18.52 percent higher to 1,575 lira on the news. The main index rose 0.97 percent to close at 10,931.12 points. In return, Cukurova chief Mehmet Emin Karamehmet, one of Turkey’s richest men, gets World Bank help to restructure debts to Yapi Kredi within his empire of GSM networks, building and textiles. Cukurova also wins a payment schedule for its debts to the regulator. Cukurova’s banking problems stem from a 2001 financial crisis that had its roots in a shaky financial sector. The sound banking system the IMF reforms aim at could be important for economic stability in the EU candidate in the event of a possible US-led attack against neighbor Iraq. The Banking Supervisory Board (BDDK) was created to overhaul the sector but its credibility was at stake after Cukurova challenged its right to seize Pamukbank last year. Turkey’s top administrative court has upheld Cukurova’s appeal but BDDK now says Cukurova had agreed to drop that case in return for yesterday’s protocol, which said Pamukbank’s control had been taken over again by the regulators. When the regulator took over Pamukbank, citing a $2.5 billion capital shortfall, it also took over executive control of some 40 percent of the shares in fellow group bank Yapi Kredi, one of Turkey’s largest private banks and one of the most traded companies on the Istanbul Stock Exchange. The regulator said it would retain control of those shares but that Cukurova had pledged to sell them to a strategic partner within three years. The agreement will allow Cukurova to go ahead with a debt-restructuring plan for the entire group under a World Bank-backed support program. The regulator also announced a debt repayment plan for money owed by Cukurova to Pamukbank and other Turkish banks seized during recent financial turmoil. «If the decision had not been taken, then the bank (Yapi Kredi) would have had to put aside provision for the Cukurova debts. That would have increased balance sheet losses,» said Nergis Kasabali, research chief at Ata Investment in Istanbul. Analysts have estimated Cukurova’s overdue debts to Yapi Kredi could be nearly $2 billion.

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