Plan to nationalize foundation shares in Vakıfbank stirs reactions

22nd, 2014
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A government plan to nationalize the share of foundations in Vakıfbank’s capital by transferring them to Treasury accounts under Article 7 of a draft bill that will amend a number of laws, including Banking Law No. 5411, has caused controversy.

The move has been identified in media outlets critical of the government as a “bomb,” as such a move would be tantamount to nationalization of the nation’s major foundations and trusts. Experts have been cited as saying this draft will likely be legislated in Parliament, and if it passes as is into law, it will possibly be scrapped by the Constitutional Court since, as required by their definition, foundation assets cannot be transferred to the state.

It has been argued that even if the Constitutional Court somehow allows it, the European Court of Human Rights (ECtHR) would rule against such legislation.

The bank was established in 1954 under the orders of late Prime Minister Adnan Menderes with the participation of the nation’s foundations and trusts, represented by the General Directorate of Foundations (VGM), in a capital contribution structure. Article 7 of the draft envisages adding new paragraphs to Article 6 of Foundations Law No. 6219. These changes propose that the VGM’s 58.5 percent share in the bank be transferred to the Treasury at an appraisal value determined as an average of evaluations by three different assessment companies. The Cabinet will oversee the process. Likewise, the government will decide the terms of the payments in return for the transfer of shares.

Bankers have noted that the government’s real intentions could be to privatize Vakıfbank after completing the acquisition of shares.

A VGM official speaking to Today’s Zaman on condition of anonymity called the government’s move to take over the shares of the foundations is “unacceptable.” The official said almost a quarter of the land in Turkey is owned by foundations, and these foundations are in constant need of capital to proceed with their services, and that Vakıfbank has been working properly as a lender of first resort for them. “The [bank’s] initial capital was TL 50 million when it was first founded 60 years ago, and this number has reached TL 10 billion today. So, foundations have about TL 6 billion in capital share with this bank. Is there any other investment opportunity that promises such a high return?” he noted.

The same official said the government’s rationale in seizing the foundations’ shares in the bank is related to the reluctance of the sector’s watchdog, the Banking Regulation and Supervision Agency (BDDK), to allow dividends to be distributed. “If foundations need money, they may offer 5 percent of their shares and put TL 300 million in their pockets,” he stated.

Vakıfbank General Manager Halil Aydoğan was asked about his assessment on the issue while at a ceremony in İzmir for the launch of a program that will deliver convenient loans to members of the İzmir Chamber of Commerce (İZTO). He said he supports “the preference of the political will.”

The general manager also commented on another article in the draft bill about Vakıfbank, which seeks to make it possible for the bank to establish an Islamic lender — or participation bank, as it is called in Turkey — in collaboration with other public banks. If legislated, everything that this article requires will be carried out, he said.

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