Risk Management in
Islamic Financial Instruments
76
compliant money market instruments known as lease certificates to enhance liquidity for the
Islamic banks.
4.4.2.1 Turkish Banking Sector
The following analysis consists of 4 Turkish Islamic banks for which data is available on the
BankScope database. The banks are: Albaraka Turk Participation Bank-Albaraka Turk Katilim
Bankasi AS, Kuveyt Turk Katilim Bankasi A.S.-Kuwait Turkish Participation Bank Inc, Asya
Katilim Bankasi AS-Bank Asya and Turkiye Finans Katilim Bankasi AS.
Average total assets for the Turkish Islamic bank sample is 5,540 million USD, with average
deposits of 4,470 million USD. Islamic banks have, on average, 1,786 employees and an
average number of 80.5 branches each.
4.4.2.2 Overview of Turkish Banking Sector Performance
The following analysis on the overall performance of the Turkish banking sector is based on
the dataset provided by The Turkish Banking Sector Interactive Bulletin 2014 (see:
) that discloses financial statements, information, and
key financial performance ratios for the Turkish financial sector. The financial ratios are
calculated as the sector average for participating institutions and depository institutions and
can be broadly categorized into four broader types: a) Asset Quality, b) Capital adequacy, c)
Operational Efficiency and d) Liquidity. Yearly interval data for the period of 2003 to 2014 are
used for the following analysis. Generally, Islamic banks and financial institutions are
identified as participation institutions, while the conventional banks and financial institutions
are identified as deposit institutions in the Turkish Banking Sector Interactive Bulletin 2014
database.
Asset Quality
Two ratios, a) Non-Performing Loans (Gross) / Total Cash Loans (%)-Ratio and b) Provision
for Non-Performing Loans / Gross Non-Performing Loans (%), ratios are cited in the database.
Chart 4.17 and Chart 4.18 graphically present the trends for Non-Performing Loans (Gross) /
Total Cash Loans (%)-Ratio and Provision for Non-Performing Loans / Gross Non-Performing
Loans (%)-Ratio, respectively.
During the 2005 to 2014 period, the average Non-Performing Loans (Gross) / Total Cash Loans
(%) Ratio has been steadily decreasing (from 5.67% in 2005 to 2.88% in 2014) over the years
for the depository institutions, which are conventional banks. For the Islamic banks, identified
as participation institutions, the trend is also decreasing (from 5.74% in 2005 to 3.77% in
2014), but the ratios are generally higher, compared to the conventional banks, which suggests
a lower asset quality for Islamic banks. The Provision for Non-Performing Loans / Gross Non-
Performing Loans (%)-Ratio is also showing a downward trend in general as a result of
improving asset quality for both Islamic banks (from 69.22% in 2005 to 63.19% in 2014) and
conventional banks (from 89.49% in 2005 to 77.45% in 2014). However, in general,
conventional banks keep higher provisions, compared to the Islamic banks.