Turkey’s state-run Emlak Bank returns as Islamic lender

Emlak Bank, infamous for its role in Turkey’s crisis-hit decade of the 1990s, is returning as an Islamic lender focused on real estate.

The Turkish banking regulator granted a license to the financial institution on Wednesday, which has been named Türkiye Emlak Katılım Bankası, according to a decision in Turkey’s Official Gazette.

Emlak Bank, founded in 1946, was a lynchpin of a Turkish building boom 20 years ago that saw the government and public contractors use it as a cost centre for often ill-conceived and corrupt housing projects. Turkey was forced to close the bank in 2001 as part of pledges made to the International Monetary Fund. Emlak Bank and other state-run lenders had run up losses totalling about $20 billion.

The government of Turkish President Recep Tayyip Erdoğan has pledged to revive Emlak Bank’s role in the economy. It says the company will be used as a source of financing for real estate projects.

Turkish Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law, announced Emlak Bank’s return in August, saying it would constitute part of a new economic model following a currency crisis, along with a state-run investment institution. Emlak Bank would be integrated into a new system aimed at addressing “the absence of sustainability”, Albayrak said.

The construction sector has helped lead economic growth in Turkey through massive infrastructure projects and a housing boom. But the economy is now contracting, bringing a slump in housing sales and falling prices. The troubles have left many builders with a pile of housing stock that they cannot sell.

Over the past week, ratings agencies Moody's and Standard & Poor's have warned the government about policies regarding the financial sector, saying unconventional attempts to boost lending could threaten credit ratings.