When Turkey’s public banks perform anti-public acts

Ali Rıza Güngen writes: Public banks continue to occupy the top spots on Turkey’s agenda as they have been managing and delaying the problems associated with the country’s years-long structural crisis. Specifically, a debate has erupted over the loan given to Demirören Holding by Ziraat Bank. Let us look at how this bank has declined over the years and what can be done about it.

Ali Rıza Güngen

Public banks continue to occupy the top spots on Turkey’s agenda as they have been managing and delaying the problems associated with the country’s years-long structural crisis. They have also used in various foreign exchange transactions and in providing credits, which were all hidden from the public. In this past week, following the allegations of exiled mafia member Sedat Peker, who was made rich by the existing system, a debate has erupted over the loan given to Demirören Holding by Ziraat Bank.

While the heavy burden of the pandemic still hovers above us, particularly for those in the service sector, farmers, and small business owners, it is to be expected that the acts of public banks be scrutinized. The mission of Ziraat Bank is not to give loans to Demirören Holding; however, a significant portion of its resources has been devoted to such dealings for a long time. Today, loans that belong to Ziraat Bank’s specialization field (agriculture), now account for only 14 percent of the total. Let us look at how this bank has declined over the years and what can be done about it.

For decades, Ziraat Bank’s mission has been to support farmers as well as small and medium-sized agricultural enterprises. However, even during the planning period (1960 – 1980), the bank was obliged to support other businesses assigned to it according to the general plan. Since the 1980s, the ‘social purpose’ of the bank been deteriorating. Support for the agricultural sector has diminished with the provision of loans under favorable conditions. Credit policies in the 1990s left no room for doubt. The bank was converted into a joint stock company in 2000, and reiterated that it could still carry out the same transactions deposits. During the restructuring after the 2001 crisis, like other public banks, it was given the status of a profit-oriented financial institution and started making record-high profits.

The primary goal of the ruling Justice and Development Party (AKP) executives was to privatize public banks, but the steps towards this aim were disrupted by the 2008-09 financial crisis. During that period, it became clear to the ruling bloc how effective these banks were in the provision of certain loans. In 2010, the period for share sales was extended until 2015, but this was the last extension; because, during the same period, the plan to privatize state banks was shelved.

Over the next decade these organizations started to be used to unlock all kinds of closed doors. These banks have been and continue to be used in several areas, from the provision of loans to capital groups in large-scale infrastructure investments to contributing to various ‘pools.’ They were used for recovering the credit market following interest rate increases to prevent the devaluation of the Turkish Lira. They were also used as a part of AKP interventions in the foreign exchange market.

The establishment of state banks for further integration into Islamic financing after 2015 and the transfer of Ziraat Bank and two other public banks, Halkbank and VakıfBank, to the Wealth Fund in 2017 symbolized the effort to create a giant financial apparatus at the disposal of the ruling bloc. The Wealth Fund supports strategic sectors by deepening financial markets. This suggests that new barriers will be placed in front of state banks regarding their social responsibilities.

Turkey offers very little optimism regarding the use of public banks in recent decades. In the context of facilitating the delivery of various social services, the influence of state banks and their contributions in terms of mitigating market devastations are overshadowed by their questionable credit policies and transactions.

Court reports show in their censored data that state banks have increased the limits of credit for certain firms while credit risks of certain firms have not been properly analyzed. Ziraat Bank’s corporate loans increased above normal in 2018. While the loan amounts given to companies increased, the collection and closing of loans from previous periods were not completed.

As such information is hidden from the public, we do not know the value of the assets that Demirören Holding put up for collateral when using a loan to acquire a media company, and how much of the loan it covers. However, we can monitor the extent of the inconsistency in loans via the Turkcell example. The 1.6-billion-dollar loan provided to Çukurova Group so it could hold its shares indicates what might have happened in the Demirören case. Ziraat Bank postponed the installments, which started in July 2017, when Çukurova did not pay them. Overdue debt continued to accumulate with interest. The return on the assets received as collateral was inadequate, but they continued to wait without doing anything about the overdue payments. After long negotiations, the Wealth Fund became the main shareholder in Turkcell in 2020. Although there is no possibility of closing the debt with dividend income, Ziraat Bank announced that the loan was collected in October 2020.

Ziraat Bank tried to challenge the Çukurova scandal by declaring that it avoided foreclosure in the agricultural sector and tried to protect farmers. Their argument in the face of criticism also points to the crux of the issue; The duty losses in recent years are a result of the provision of loans to small businesses, farmers, and those who are struggling during the crisis under favorable conditions.

However, the issue of providing irregular loans or the failure to collect payments is obvious. The inability of state-owned financial institutions to collect loan repayments from companies for years is only possible by easing or eliminating that organization’s mission. This mission can clearly be overridden via disorganized bank employees and a lack of public transparency. Since a small number of barriers were eliminated after the 2001 crisis, it became almost impossible to hold state banks accountable.
The case of Ziraat Bank should remind us that, just because a financial institution or a company is state-owned, it does not mean that it operates as a public institution.

We must not allow such corrupt practices in the financial sphere to overcast our political vision. It is possible to manage state banks democratically and expect them to operate in the public interest, in short, to make them ‘truly public.’ It is up to us to continue to strive for transparency with regard to who received what when from the organizations that work for us, and to hold accountable those responsible for public losses. However, we must go further to democratize and restructure state banks like all other critical institutions in Turkey. Otherwise, Turkey’s structural crisis will lead to a re-emerging of practices liken the those under the name of a ‘restoration government.’