Gov’t loyalists take over at Turkey’s two biggest banks

ANKARA/LONDON (Reuters/Fitch) – Turkey’s ruling party now has close allies in charge at the country’s two biggest banks but will have to work hard to convince markets their appointment will not undo IMF-backed reforms. The team of managers at state-run banks Ziraat and Halk appointed under former Economy Minister Kemal Dervis were replaced on Thursday in elections by a new team, most of them with ties to the ruling Justice and Development Party (AK). Bad loans at the two banks, which account for just under 30 percent of the Turkish bank sector’s total assets, were at the center of financial crises in Turkey in 2000 and 2001. Reforms demanded by a $16 billion IMF bailout demanded that the banks were given autonomy to distance them from the politically motivated lending that weighed them down. Appointing like-minded bureaucrats to key posts is routine in Turkey. But with confidence in the AK government low after apparent foreign policy failures over Iraq and Cyprus, alarm bells rang in Turkey and abroad that the new appointments could herald a return to the bad old days of patronage. A Turkish official close to the state bank system who asked for anonymity saw a threat that the banks’ resources might be used to favour AK loyalists. «As in the past, the AK may create its own wealthy. It may bring up awarding loans outside the banking rules. We may again be face to face with bad loans,» he said. Economy officials declined to comment on the appointments to the banks, which are restrained by tighter new IMF-backed laws on bank accounting and management. But the worries pushed Turkey’s dollar debt lower in London yesterday. «The International Monetary Fund won’t necessarily approve of these appointments. There is still a lot of bad debt tied up at these banks, which was due to the old politically motivated lending through the state banks,» said Alex Garrard, emerging debt strategist at UBS Warburg in London. «It adds to the suspicion that that might happen again in due course,» he said. Zeki Sayin was voted in as chairman of the joint board that has run both banks since financial crises in 2000 and 2001 exposed deep holes in their books. Sayin, who replaces Safa Ocak, was formerly head of the Istanbul municipality’s marketing firm, running a chain of supermarkets and other outlets in the city. Sayin is reportedly close to Prime Minister Recep Tayyip Erdogan, a former Istanbul mayor. Can Akin Caglar becomes Ziraat’s general manager. Both have previously worked in Turkey’s Islamist banking sector, a small finance sector where earnings from interest are avoided in favor of direct investment in business. Tevfik Bilgin takes over at Halk Bank. Downgrade Following the downgrade of the Republic of Turkey’s Long-term foreign and local currency ratings to B- (B minus) Outlook Negative, Fitch Ratings announced yesterday various changes in the debt ratings of the Turkish banks and financial institutions. The ratings affected are the foreign currency (FC) Long-term, FC Short-term, local currency (LC) Long-term, LC Short-term, and National ratings. In all cases, the Long-term rating Outlook has been revised to Negative from Stable; an Outlook reflects a time scale of one to two years.

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