TURKEY - Finance
General Manager, Bizim (BMD) Securities
Beginning his career as an auditor in Ülker Group in 1994, Reşat Karabıyık stepped into capital markets in his career with the Crown Investment Trust. He has served in many areas of the sector such as corporate finance, accounting, research, and fund management over a period of more than 15 years. He is currently General Manager of Bizim Securities.
BMD Securities started as a boutique investment institution in 2003, and began with an agency agreement with Family Finance. We started offering capital market services to the clients of private finance houses in 2003. Although we are a conventional company, we developed know-how in interest-free investment products. Family Finance was similar to Islamic-style banks abroad, which have been called “participation banks” since 2006 in Turkey. Before 2003, there were no compliant interest-free investment vehicle products in Turkey, and no regulations. The regulations have changed and become more flexible to cover interest-free investment products and tools. In 2003, the finance houses as they were became participation banks and are now regulated by the banking laws. We work with all four Turkish participation banks at the moment, and are their exclusive investment institution. BMD Securities provides capital market services and products for all of the participations banks’ clients, including brokerage services and other integrated investment services, such as investment consulting, IPOs, asset management, and similar investment services. That is where most of our growth comes from. We’ve developed an expertise in Turkey, and now this is the only institution that has an exclusive partnership with more than one bank and serves as an interest-free capital market service and products provider. We started with a few hundred clients, and now have over 50,000. We are almost in the top 10 in terms of assets under custody in Turkey, and we are in the top five in terms of corporate finance revenues coming from IPOs, M&As, and similar activities. We are one of the largest brokerage houses in Turkey in terms of client size and assets under custody. Since we were the first to provide interest-free investing, we developed and pioneered a number of investment vehicles in Turkey. We were the first provider of Islamic, or interest-free, investment funds in Turkey specifically tailored to participation bank clients. Also, we were the issuer and asset manager of the first Islamic exchange-traded fund (ETF) in the world. It’s called the Dow Jones Islamic Market Turkey. It was launched in 2006 and was the first of its kind. Since then we’ve launched a few other ETFs, and we are known for our expertise in this field in Turkey. We are the second largest provider after Finansbank, and also have the highest number of ETFs after Finansbank. They are all compliant products and are marketed toward participation banks. One of them is the Participation Index ETF, which is provided by BMD Securities. We are also the Turkish provider of gold and silver ETFs for Kuveyt Türk Bank in Turkey. In total, we have four ETFs and are planning to launch more.
At the beginning, it was huge because there had previously been no market at all. The growth rates naturally became very high, some at 300% or 400% per year. We started with a few hundred clients in 2003 and by 2007 we had close to 20,000 clients. Since there were no products to supply, we provided investment funds and brokerage services for participation banks. The demand was comparatively large. It has diminished over time, but we have been the fastest-growing brokerage house in Turkey since 2006. Back then, we started with one bank, Türkiye Finans, then made an agreement with alBaraka in 2007, Kuveyt Türk in 2008, and Bank Asya in 2009. As we made agreements with the banks, the clients came from these institutions to us. We saw both types of clients; the first being those who had worked with conventional institutions before and who were the clients of participation banks. When they heard that we provided investment services, they came from those institutions. The second type of customers had never been introduced to the capital markets at all; they were fresh, new clients who hadn’t been trained or introduced and didn’t know anything about the kinds of products on the market. We are trying to push products through participation banking channels. Usually, we are the initiator of demand by introducing products and explaining what these products do. Both people and institutions need to be aware of the products that exist. Because the participation banks never worked in this way, they were not aware of how we investment bankers can add to the value of an institution. This is transforming gradually.
It is a fruit of the process that began in 2003. Back then, the participation banking sector had no products at all and the Participation Index defined the standards of interest-free investments and equities in Turkey for the first time. To me, this is the most important part of the Participation Index. Turkey didn’t have regulations or sector standards. We are the initiator because we’ve worked with all of the participation banks in Turkey, and we know their expectations and demands for these standards. These are the mutual standards approved by all of participation banks. The other important part is that it’s an index in which we can establish investment products, such as ETFs. Now we expect an increase in the number of licensees. BMD Securities is not an index provider company, but there was no other institution who could do the job, and so we stepped up to the plate.
Until 2006, we didn’t see any significant steps from the participation banks because they were limited by regulations. They couldn’t perform many operations, such as launching investment funds or getting a license from the Capital Markets Board for certain capital market activities. Since 2006, we’ve seen an increasing awareness from the participation banks on the investment banking side, and even more so since 2009. Now they are starting to demand products and services on the capital markets side. Before that, we were trying to push products and services through their channels, but now their awareness is growing and they understand the importance of the capital markets and investment products. As the market in Turkey stabilizes, we are seeing decreasing interest rates, which proves that the focus is moving more toward investment banking. Banks must now find new instruments and products to get more revenue than in previous periods when the interest rates were high. During periods of high interest rates, the banks are not as interested in other products because they make money from the high interest. As interest rates decrease, banks are trying to collect more revenue from the commissions, services, and capital markets sides, as well as through insurance and similar activities. We expect that this will increase the size and volume of the participation banks in the capital markets in the following years.
We are one of the top five companies in terms of corporate finance revenues, from which we’ve made the most revenue until now. We have the highest number of colleagues in corporate finance, with around 20 people. We have experience in this sector and we will continue putting emphasis on corporate finance projects. Until now, we’ve mostly carried out projects at BMD Securities’ headquarters, not through the participation banks. Usually the more experienced and qualified people are needed in the banks, so those people are typically on the banking side, not the corporate finance side. In the future, we are planning to continue corporate finance projects as this is an area where we expect more growth in the coming years. The demand for corporate finance services is related to the companies themselves. The current corporate structure in Turkey is not suitable to create that line in corporate finance services. With the new Commercial Code in Turkey, we expect this will change and the corporate structure in Turkey will lead to increasing demand as the companies prepare themselves to be publically offered. Depending on the preparedness of the company, the public offering of a company may take a year or more; if the company is prepared, a few months should be enough. At the moment, there are roughly 2,000 corporate finance projects in Turkey, and we expect this will increase to at least 10,000 in the next two or three years.
I expect many fundamental changes in the capital markets before the year ends. The structure of asset management companies and brokerage companies will change. We expect a more competitive sector, both locally and internationally in the coming years. We will face more international competition, and may see a higher foreign presence in Turkey’s capital markets.
© The Business Year – October 2012
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