Akfinans Bank investors make risk free gains at the cost of wrecked lives

tiny frogLast week there was apparently a very interesting article in Yeniduzen and the subject of the article was Mr. Kursat’s justification of Akfinans Bank Limited’s actions in the Kulaksiz 5 case. Mr. Kursat made the very true comment that banks cannot take risks; they are the trustees of their clients’ money and obviously should not take risks with it. I wholeheartedly agree, but then why did they take actions which on the face of it would seem to be prime examples of risk taking?

Let’s hypothetically assume that Yuksel Ylmaz and Abdurrahman Guney were total strangers to the Bank Manager, and they came off the street and asked for a mortgage.  What action would a Manager, trustee of clients’ money, take to see that these two strangers to him were a good risk? Did he for instance, run a credit check on them to see if they had had previous loans and repaid them diligently? Did s/he check their ability to repay the monthly mortgage payments by checking on their income and expenditure? Did s/he check that the land on the two koçans was as stated, farmland, that in fact it had not been built on and the villas sold on to others?

Surely it is a risk to advance money on a security which according to contracts in place showed the intention of Yuksel Yilmaz to transfer ownership of properties to the new Beneficial Owners, named on the contract, and who had already paid in full for them. Even the most cursory enquiries about the land offered as security would have revealed to Akfinans Bank’s representatives that there were properties already built on that land. The expectation would be that the Bank would then be alerted that there could be a potential future problem if Yuksel Yilmaz defaulted on these loans.

For me this is where the claim of trusteeship of other people’s money falls down. The very act of sending someone out to check the status of the land would have revealed that in November 2005, there were ten completed bungalows on that site and three almost complete houses. Now as trustees of other people’s money, would that not have been the time to pull the plug on the mortgage application assuming all the other checks were satisfactory?

Now let’s move on to the interest rate charged. Apparently this was not mentioned in the article and I can understand that mentioning 80% per quarter compound would have put a different light on Mr. Kursat’s very reasonable arguments up to that point. No Mr. Kursat did the right thing, from his point of view, by leaving it out, just as I am doing the right and truthful thing by putting it in. As trustee of other people’s money, was it realistic to charge such a usury rate, we know it isn’t the Islamic way so perhaps the only reason was to reflect the potential risk to the bank or perhaps there was another reason?

Three months after the loan had been set up an interest payment amounting to 80,000TL was added to the debt. This would have been slightly less if repayments had been made but allegedly the borrowers have never made a single payment and one wonders if the bank had expected this. So, three months after a loan had been set up, the outstanding balance had almost doubled and the borrower had defaulted.

I can think of only one way that Akfinans Bank would consider the Kulaksiz 5 mortgage a non-risk, especially after the borrower allegedly defaulted and the Bank decided not to call in the loan. Perhaps you can see it too? I’m not saying that this is what Akfinans Bank set out to do but it turned out that by allowing the borrower to default on the loan, and allowing the balance to grow to 2,077,000 TL in less than five years, meant that during this time the debt came to equal the perceived value of the land to include the properties paid for by a group of ex-pat pensioners.

In the newspaper apparently Mr. Kursat said that purchasers could afford to make mistakes but banks could not. Well from a legal point of view this group of buyers did not make mistakes, they took every precaution and followed the TRNC legal system, how could they have known a mortgage would be granted to the people who had sold to them? They certainly did not take known risks, and now it appears as if the Akfinans Bank might have had an idea that the £40,000 they loaned was not at risk at all and they might even have known from the start that the debt would result in them owning a asset worth nearly a million pounds. This is all speculation of course.

If readers of the Turkish newspaper find that my understanding of the article was incorrect through poor translation then I am happy to correct any misunderstanding as to Mr. Kursat’s statements in it.

The victims, who unwittingly became part of this financial game, now face eviction. They will have no home, no money and no future in the twilight of their lives. In short, they are living in fear of that ‘knock’ on the door when their worst imaginings will be realised. Akfinans Bank’s action may not have put money at risk but those actions have certainly wrecked lives.

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