(Fixes typo in second paragraph)
* Bank Asya deposit base shrinks, lending down
* Profits drop in both Q1 and Q2
* Governments ups pressure, contracts cancelled
By Seda Sezer
ISTANBUL, Aug 12 Turkish Islamic lender Bank
Asya said its second-quarter net profit slumped 81
percent to 10.6 million lira ($4.9 million), as its deposit base
shrank and lending wilted under pressure from the government.
The bank has seen its profits and capital base collapse
since December when it found itself at the centre of a power
struggle between Prime Minister Tayyip Erdogan and his political
foe Fethullah Gulen, an Islamic cleric whose sympathisers
founded the bank.
Erdogan accuses Gulen, who is based in the United States, of
seeking to overthrow him and has pledged as president to
continue purging institutions, such as the police and judiciary
where Gulen is believed to wield influence, of his supporters.
Bank Asya is one of four Islamic lenders in Turkey.
Three state-run Turkish banks - Ziraat, Vakifbank
and Halkbank - have also been looking into setting up
Islamic banks over the past year as the secular republic has
opened up to Islamic finance to tap a pool of rich investors.
An economy regarded as one of the most progressive and
successful in the Muslim world, Turkey seeks to play a bigger
role in Islamic finance.
The ruling AK Party, which espouses Islamic values, helped
to cement its 12-year rule with a win in local elections in
March and Erdogan, who hails from its ranks, was elected
president on Sunday.
Bank Asya has been caught in the middle of the wrangling
between Erdogan and Gulen. Earlier this year, state-owned
companies and institutional depositors loyal to Erdogan withdrew
4 billion lira, or some 20 percent of its total deposits, local
media said in January.
Bank Asya's Chief Executive Ahmet Beyaz said then that the
lender had weathered mass deposit withdrawals and was not at
risk. The government declined to comment at the time.
Bank Asya was not immediately available for comment.
Loans contracted by 11 percent in the second quarter, while
deposits shrank 3 percent, the bank said in a statement to the
Istanbul stock exchange late on Monday.
Net fees and commissions declined 33 percent to 55.1 million
lira, while loans and receivables dropped 28 percent from the
end of 2013 to 14.99 billion lira, it said.
Bank Asya shares have been suspended from trading since Aug.
7 after Turkish authorities cancelled key contracts with the
bank, including a tax collection deal.
Bank Asya said at the time that the loss of the tax deal
would "not have a significant impact" on its activities. The
stock exchange has not said when the suspension would be lifted.
CONFUSION OVER SALE
Last week, top government officials appeared to be at odds
over a possible state purchase of the bank.
Deputy Prime Minister Ali Babacan said on Wednesday that
state-run Ziraat Bank, which is looking to launch its own
Islamic banking unit, could buy Bank Asya, but an advisor to
Erdogan subsequently denied such a plan.
The two banks have not officially begun talks.
Bank Asya attempted earlier this year to form a strategic
partnership with Qatar Islamic Bank (QIB) but the deal
never materialised, opening the way for alternative suitors.
(1 US dollar = 2.1597 Turkish lira)
(Additional reporting by Ceyda Caglayan, Ebru Tuncay; editing
by Tom Pfeiffer and Shadia Nasralla)