Solution proposal for the transfer of problem loans in participation banking: Revenue sharing model

The share of loans granted in the Turkish banking sector in the balance sheet is 59% as of the end of 2020. The weakening of the collection ability of the loan portfolio, which constitutes a significant part of the balance sheet, causes significant damages in the balance sheets of the banks and leads to the deterioration of basic financial indicators. At this point, banks assign loans that are deemed to be weakened or absent to asset management companies in order to improve financial indicators, clarify the balance sheet and reduce the operational burden incurred due to collection transactions. Because asset management companies are institutions that have taken the collection of non-performing loans as their main field of activity. However, there is some skepticism about non-performing loans to asset management companies to assign their participation banks adopting the principles of Islamic banking in Turkey. Because this transaction is defined as the sale of receivables in Islamic law and is not generally accepted. The aim of this study is to develop a method proposal that enables participation banks to get support from asset management companies in the collection of non-performing loans. In conclusion, a model in which asset management companies are appointed as a proxy for the collection of problem loans and the collected amounts are shared with the bank within the framework of proxy in Islamic law. In addition, the proposed method provides improvement in financial indicators and allows the balance sheet to be clarified by removing non-performing loans from balance sheet records within the framework of TFRS provisions. Key Words: Problem Loans, Participation Banking, Asset Management Company, Revenue Sharing Model, TFRS.