Turk bank seizure blow to political nepotism-analysts

Reuters ^ | 20 JUNE 2002 | Mark Bentley

[Turk2]

Turk bank seizure blow to political nepotism-analysts
Mark Bentley, ISTANBUL, June 20 (Reuters) - The seizure by Turkey's bank watchdog of Pamukbank, the country's seventh largest bank, is a blow to political nepotism in the crisis hit economy and another victory for Economy Minister Kemal Dervis in his reform quest, analysts said.

The state sponsored banking watchdog has already seized 19 private banks, which were at the heart Turkey's recent financial turmoil, though the sale or closure of some of them has been delayed by court appeals filed by owners or employees.

But the latest seizure set a landmark: Pamukbank was majority owned by leading industrialist Mehmet Emin Karamehmet and his Cukurova Holding group of companies that also includes leading mobile phone provider Turkcell.

The watchdog has killed the "umbilical cord between conglomerates and their banks, intraparty loans and everything else," Tolga Atac, director in global economics at Lehman Brothers in London.

"It's almost like a revolution," Atac said. "They're basically saying that the ($16-billion IMF rescue) programme is not going to protect anybody."

Economy Minister Kemal Dervis said on Wednesday the watchdog's latest action meant a key IMF-backed bank recapitalisation plan was now complete and the fund's board would soon meet to consider a latest $1.1 billion loan tranche under Turkey's $16 billion pact.

But analysts said the latest bank shake-up could not have been achieved without what they termed implicit IMF pressure.

"The decision was made under very strong pressure from the IMF. It would not have been possible for them to do it without the IMF," said Volkan Kurt, economist at ABN Amro. "Yapi Kredi belonged to one of the most important groups, but Turkey did it, it did the right thing."

FUTURE OF YAPI KREDI?
Although analysts labelled "courageous" the watchdog's Wednesday takeover of Pamukbank and the seizure of two seats on Yapi Kredi's (YKB) -- both members of the Cukurova Holding group -- the move leaves the watchdog with a problem: what to do with Yapi Kredi, the country's third largest private bank.

The future of YKB could be an unclear one unless a likely standoff over the ownership of a major part of the bank's capital between majority shareholders Cukurova Holding and the watchdog is not resolved quickly, analysts said.

The most likely outcome is a sale.

"It will be up for sale for sure...There will be some interest from local consortiums and foreign groups," said Kurt. "It will lose market share, it will lose customers, so the sale must happen as soon as possible."

YKB's general manager told reporters on Thursday it would be business as usual at the bank although the watchdog replaced two of its directors including Mehmet Emin Karamehmet, head of Cukurova Holding and one of Turkey's leading industrialists.

General Manager Naci Sigin said the watchdog's move on Yapi Kredi did not mean the bank was now controlled by the state.

A recent IMF-backed banking law states that no shareholder in a failed bank can found or hold a major stake in another private bank. The two removed directors were major shareholders in Pamukbank.

That means the watchdog now has executive control over 40 percent of the YKB's total share capital previously owned by Karamehmet and his colleague but it was not immediately clear whether the regulator had the right to sell those shares.

The watchdog on Wednesday announced a capital shortfall of $2 billion at Pamukbank when explaining the seizure saying the bank endangered the health of the whole banking system.

"It was somewhat of a surprise. We were expecting something at Pamukbank and we already knew it would need equity but we didn't know the amount," Kurt said.

Ongoing reforms of Turkey's banking system aim at strengthening banks' capital and ending a tradition of intra-group lending that has helped spark several bank failures in the past.

"It takes a certain skill to create a $2 billion hole in a bank. It's 1.5 percent of Turkey's GNP, I mean it's incredible," Atac said.

Analysts fear the operations of Turkey's leading cell phone provider Turkcell, also owned by Cukurova, may also be affected by the watchdog's action.

The regulator now holds an eight percent stake in the mobile phone provider previously owned by Pamukbank and analysts said the regulator's next move could be critical to Turkcell's future.

"The near term picture is that the uncertainty on Turkcell is going to be major," Atac said.

"Are they (the watchdog) going to sell the eight percent stake to the market or are they going to find a buyer for it? Will Cukurova continue to hold Turkcell, that's the biggest question," Atac said.

The Istanbul stock exchange suspended trading in Yapi Kredi and other Cukurova Group companies on Wednesday but re-opened trade in Turkcell, which lost a whopping 17.81 percent.

The companies each have one of the largest market caps on the main Istanbul index, which was dragged down two percent on Wedensday as Turkcell went into freefall.

Analysts said it could take a few weeks before Yapi Kredi shares were re-opened on the Istanbul stock exchange.