Turkey Money Managers Say Capital Boost to Spur Shutdowns

Turkish portfolio managers will struggle to comply with a regulatory proposal boosting minimum capital requirements more than 20-fold to 10 million liras ($5.6 million), according to a group representing the industry.

“If this draft passes as is, many companies would have no choice but to shut down,” Attila Koksal, chairman of the Association of Capital Market Intermediary Institutions of Turkey, said by phone yesterday. The group’s members include 142 brokerages and banks, according to its website. “We hope that in the end we’ll have a more rational figure,” he said.

The Capital Markets Board, or CMB, proposed Feb. 27 raising minimum capital requirements from 427,000 liras amid plans by Prime Minister Recep Tayyip Erdogan’s to turn Istanbul into a global financial center and make Turkey’s economy one of the world’s 10 biggest by 2023. Turkish money managers would be required to hold 14 times more capital than those in the European Union, which set a minimum threshold of 300,000 euros ($392,000) in 2011 for alternative investment fund managers.

The new rules would leave most of Turkey’s 35 portfolio managers short of funds as their average capital was 3.65 million liras at the end 2012, according to CMB data. Garanti Portfoy Yonetimi AS, a unit of Turkiye Garanti Bankasi AS, and Is Portfoy Yonetimi AS, a Turkiye Is Bankasi AS subsidiary, are the only two companies that currently meet the proposed minimum.

The CMB will probably complete its draft within weeks, Koksal said.

‘Think Big’

The regulator’s draft capital requirements aim to “raise the standards of institutions so that they become big and think big,” CMB Chairman Vahdettin Ertas said, according to an April 15 report in Dunya newspaper. “Business cannot be done with such levels of capital anymore in Turkey,” he was quoted as saying. A CMB official, who didn’t want to be identified according to the board’s policy, declined to comment on the proposal when contacted by e-mail.

Turkey’s BIST National 100 Index has advanced 5.8 percent this year after soaring 53 percent in 2012, the best performance among 93 indexes tracked by Bloomberg. Investors in Turkey are increasingly placing their money with fund managers after the average interest rate on one-year bank deposits plunged in the past decade to 6.5 percent from 57 percent, data compiled by Bloomberg show.

The number of portfolio management companies operating in the country has climbed from 21 in 2003, while the funds they manage soared to $32 billion from $13 billion, according to CMB data.

Scaring Investors

Turkey is building a financial district in Istanbul and merged the 28-year-old Istanbul Stock Exchange with gold and derivatives exchanges into Borsa Istanbul this month. Borsa Istanbul also announced a plan to attract more foreign companies to list in the country.

Setting the requirement too high “would only scare off investors,” according to Berrin Onder, a board member at Logos Portfoy Yonetimi AS. The Istanbul-based portfolio manager, established in 2010, has 828,000 liras of capital.

“If this rule comes into effect, it would be only in the interest of banks and big financial companies,” Onder said in an interview April 15. “What we need in this industry is to boost the number of players, not cut it.”

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