ABDULLAH BOZKURT

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ABDULLAH BOZKURT
May 21, 2012, Monday

İşbank and the CHP

Just as it is unusual for the Turkish military to maintain a multi-billion dollar lucrative business enterprise called the Turkish Armed Forces Assistance Center (OYAK), a kind of pension fund with special privileges and exceptions in the law at the expense of other businesses, it is equally bizarre for Turkey's main opposition party, the Republican Peoples' Party (CHP), to own a major share in Turkey's largest private bank, İşbank, in contemporary Turkey.

Not many people know this today, but the bank was in fact established on Aug. 26, 1924, under orders from the founder of the Turkish Republic, Mustafa Kemal Atatürk, with donations of cash and gold bullion from the Muslims of India, who sent the assistance via the Imperial Bank of India to support the Turkish War of Independence. It was the first national bank in Turkey. It opened two branches with a startup capital of TL 1 million 88 years ago. Since there was only one party -- the CHP -- at the time, and the government pretty much owned everything, it was understandable that the governing party, the CHP, might have owned a bank as well, at least until 1950, when Turkey made a transition to the multiparty system.

Today, after more than three-quarters of a century have passed since the inception of İşbank, it simply does not make any sense for the CHP, espoused to be a social democratic party, to still keep its shares in this bank. This not only goes against free market rules and violates fundamental social democratic values but also creates an unfair advantage for İşbank as a major political party represents it in Parliament. How would the CHP react to possible changes in financial and banking regulations in the law when the draft that would likely have an impact on İşbank comes to Parliament? Will the CHP side with consumers' rights or defend the bank's interests to keep its shares as profitable as possible? These are fair questions to ask.

İşbank is the largest private bank in terms of total assets and deposit base. It has 1,209 branches with 17 of them overseas and employs some 25,000 people. Its asset size has reached TL 163 billion (approximately $89 billion), while its shareholders' equity has increased to TL 19 billion (over $10 billion). It has a deposit base of TL 94 billion ($51 billon approximately). The bank's net profit stood at TL 708 million (roughly $385 million) in the first quarter of the year, a six percent increase over the same period last year. The bank is also the top lender in Turkey with commercial loans reaching TL 67 billion ($36 billion approximately) and retail loans TL 26 billion (over $14 billion).

According to the annual report issued by the bank, approximately 30 percent of İşbank shares are publicly traded, with the remainder controlled by the İşbank employee pension fund (42 percent) and the CHP (28 percent). That means that the CHP owns shares with a market value of TL 5.3 billion through İşbank. The public records of İşbank prove that CHP leader Kemal Kılıçdaroğlu, who denied the claim that his party is a partner in İşbank during budget deliberations in Parliament in December 2011, simply lied to the Turkish people. Kılıçdaroğlu, who served on the board of directors of İşbank from the CHP quota in the past, should be embarrassed with this futile attempt to try to hide the plain truth from the public.

But I do understand his motivations, as there are a number of problems with this picture of the CHP owning major shares in a bank. The fact that the CHP manages 28 percent of Turkey's largest lender is against Political Parties' Law No. 2820. According to Article 67 of this law, political parties are banned from conducting commercial activity. They can only obtain credit or loans using party assets as collateral under strict guidelines. It also violates constitutional articles with respect to the political parties.

The problem is not just limited to İşbank. The fact that İşbank does not only operate in the financial and banking industry but has direct equity holdings in 26 companies in sectors like glass, telecommunications, industry and service industries as well. It has also indirect equity in 108 companies. By extension, the CHP maintains a keen interest in the state of all these companies in which İşbank has equities. This is a prime example of a “conflict of interest” in the legislative branch of the government. Every time there is a piece of legislative change comes to Parliament that may have an impact on the business dealings of the CHP through İşbank, the CHP deputies' position would be questioned whether or not they are in fact trying to protect the interest of the bank's business dealings.

By the way, İşbank is not the only bank in which the CHP has shares. Since İşbank has shares in two other banks in Turkey, the Arab-Turkish Bank (A&T Bank) and the Turkish Industry and Development Bank (TSKB), with 21 percent and 43 percent voting shares, respectively, the CHP's dealings in the financial sector go beyond one bank.

Another serious problem is related to the CHP's appointments to the bank's board of directors. Its shares give the CHP the right to appoint four people to the 13-member board of directors at İşbank. Since March 31, 2011, Aynur Dülger Ataklı, Mustafa Kıcalıoğlu, Mete Başol and Hüseyin Yalçın have served on the board from the CHP quota. Since these people are also members of key committees deciding on credits and projects the bank sponsors, there may very well be an issue of conflict of interests here. Former CHP leader Deniz Baykal was known to use the appointments as a political tactic to silence his opponents within the party. For example, he appointed former party secretary-general and his challenger, Adnan Keskin, to the board on the eve of the party congress in 2008.

According to a report by the Prime Ministry Supreme Auditing Council (BYDK) last year and cited by the Turkish daily Akit, Kılıçdaroğlu, a former general manager of the now-defunct Social Security Authority (SSK), which was replaced by the Social Security Institution (SGK), had kept 20 percent of SSK funds in an interest-free İşbank account in clear violation of government regulations. The report determined that Kılıçdaroğlu should have deposited money into interest-earning accounts with İşbank. By not doing so, the report claimed that Kılıçdaroğlu did a great favor to İşbank by foregoing TL 28 million in interest revenue. After Kılıçdaroğlu left his position from the Social Security Authority (SSK), he was appointed to İşbank as a board member from the CHP quota, fueling speculations he was awarded with this position in exchange for sweetheart deals he contracted to İşbank.

In its defense, the CHP claims that the party does not benefit from a single lira from a profit payout of these shares even though it owns them. According to the provisions in the will of Atatürk dated Sept. 5, 1938, the profit proceeds should be transferred to the Turkish Language Association (TDK) and the Turkish Historical Society (TTK) by the CHP. But it was revealed in 2006 that the CHP, which is supposed to play the role of trustee, had failed to transfer funds to these institutions on many occasions since 1966. The issue was even referred to the court by the TTK in early 2000, and the court found the CHP in breach of the will.

Owning shares in a bank also presents credibility problem for the CHP. For example, the main opposition party often raises the burgeoning private debt in Turkey to batter the government. But it forgets to mention some of this debt actually belongs to the CHP itself through shares it maintains in İşbank. The total external debt of Turkey is $306.6 billion, according to the Treasury report for the year 2011. The private sector owns 66 percent of this debt, which corresponds to $202.8 billion. Of this private debt stock, Turkish banks own $80 billion. Bülent Gedikli, the Justice and Development Party (AK Party) deputy chair responsible for economic matters, brought up the issue on Dec. 8, 2011, during budget deliberations, saying that the CHP actually owns some half a billion dollars of foreign private debt stock in Turkey with its share in İşbank. It renders the CHP's criticism of the government policies as a less effective tool under these conditions.

Even if the CHP's claim that the shares' value for the party is zero, the ruling AK Party deputies suggest that the CHP may have kept the interest incurred from the money by delaying the transfer of the profits from these shares to the TDK and the TTK. Since the CHP does not disclose the financial sheets of the party, we simply do not know where and how these payments were made. As the lack of transparency raises an additional cloud over this problematic relationship between the CHP and İşbank, the CHP should simply turn these shares over to the Treasury or an independent trustee for management, removing any doubt of misuse and ethics conflict in the minds of the Turkish people.

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