The Curious Case of Asya Bank

Asya Katilim Bankasi A.S. (ASYAB) is the third largest Islamic lender in Turkey by assets which is backed by Gulenist capitalists making it become a target as the government declared war against Gulen movement and called it public enemy number one.

As well known, the breaking point was the graft investigation conducted by the prosecutors linked to Gulen movement in late 2013. Since then it has been speculated that Asya Bank was facing difficulties mostly created by the government. One wouldn’t expect to hear such speculations in a country where a banking crisis sank the economy in 2001. However, first, state-run companies were being told to cut the business relationships with the bank. Then Turkey’s Banking Watchdog’s banning the collaboration between Asya Bank and Qatar’s Islamic Bank followed. After that the Prime Minister Recep Tayyip Erdogan made a straight-out comment about the company, saying that the bank is not in good shape. The rest of story is even more complicated. Deputy Prime Minister Ali Babacan announced that the biggest state-run lender Ziraat is in talks to acquire Asya. But hours later we saw Erdogan’s advisor Yigit Bulut denying Babacan. A detailed articled published on Wall Street Journal can be viewed here. All sounds like a endless story? Sure it is a messy problem the has no easy solution. In other respects Asya is the 12th most traded stock in Borsa Istanbul with representing 3% of total traded volume.

Provided that second quarter results has not been reported yet, let us take a look at how things have gone for Asya for the first three months of the year.

Asya Bank First Quarter Results

As expected it has been some kind of meltdown for Bank Asya thanks to villainous government-led efforts, with corporate customers responding to government pressure by withdrawing deposits and not rolling over loans. In just three months of times total assets of the bank saw a decline around 18%. Considering the all catalysts mentioned above the year to date stock performance full of ups and down comes as no surprise.

Asya Bank Stock Performance

At the moments trading the stocks of the company is suspended until further notice and none has no idea about when this trading halt will actually finish. Meanwhile unofficial information (or noise) release still continues that would affect the stock price significantly. Ziraat’s acquisition is still in focus, on the other hand many are weighing the possibility of bankruptcy.

From a broader fundamental perspective, we saw return on average equity slumping at 6.5% and 7.4% in 1Q14 and 2Q13, respectively. Before taking this into valuation, one may derive a cost of equity of 15.3% derived from 9% inflation rate, 6% equity premium and 1.05x beta (first two components of derivation is in line with all Turkish banks while the last one is Asya-specific). With the great uncertainty about future growth, I directly take RoE/CoE ratio as target P/BV for the stock and exclude the excess capital as the bank will probably more capital to meet requirements in next 24 months. As a result I think the bank would be fairly priced in case of hanging around 0.42-0.49 times its book value. At the time being the bank is traded 0.44 times its book value at 1.24. According to my calculation it will trade between 1.20 and 1.38 which is not offering an attractive risk/reward profile under these circumstances.


The bank reportedly earned 10 million liras on 337.4 million liras of revenue, making the bank beat the expectations. Analysts expect the company to report a loss of 50 million liras.

The stock has been removed from all indexes by the Borsa Istanbul management in order to prevent it from fluctuatingly influence the market.

The talk to acquire the bank by Ziraat keep going according to the various sources.

UPDATE 2 (2/4/2015):

The management of the bank is seized by the Turkey’s official deposit insurance foundation (TMSF).

Going into more detail, TSMF takes over the management of 63% of the company’s preferred shares, citing violations of banking regulations on transparency in organizational and partnership structure. The action came after an order from the main banking regulator. Therefore, it is important to note that bank is not facing any financial problems. The bank will reportedly continue its operations. The developments for now are not to be considered as worrisome by neither equity nor bond holders.

The whole action is simply seen political-based as the country’s psuedo-independent banking regulator takes over the control of bank because of its Gulen ties in order to fulfill Erdogan’s wishes. A very briefing piece is released on Bloomberg.