Turkey’s local elections, on Sunday d, dealt the biggest blow, in more than two decades, to President Recep Tayyip Erdogan and his ruling AKP party.

Here are five things to know about the poll that turned into a debacle for the country’s veteran leader.

More than a local poll

By throwing all his energy into campaigning for his party’s candidates for mayors, Erdogan gave the election a national resonance and made it a de facto referendum on him and his party.

This held especially true in Istanbul, the country’s megapolis and economic powerhouse where Erdogan got his political start and that he badly wanted to recapture from the opposition.

The voters’ answer was clear — the ruling party not only failed to wrest back control of Istanbul and the capital Ankara from the opposition but lost ground in the country’s other major cities, including in the conservative Anatolia region, which had been considered an AKP stronghold.

“The biggest election defeat of Erdogan’s career”, is how Berk Esen, a political scientist at Sabanci University, described the election, in which the main opposition CHP party scored “its best result since 1977”.

Economic woes

The election took place against a sombre economic background — 67 per cent inflation and massive devaluation of the lira, which has deeply affected the lives of most Turks.

“When Turkish people vote, the situation in the kitchen or on their plate changes the voting trend,” Ali Faik Demir, a political scientist at Galatasaray University, told AFP.

The biggest voting changes happen “when we cannot afford a living when we cannot eat”.

Istanbul

“Whoever wins Istanbul, wins Turkey,” Erman Bakirci, a pollster from Konda Research and Consultancy, recalled Erdogan once saying.

Turkey’s economic powerhouse is the mythic city straddling Europe and Asia, accounting for 30 per cent of the country’s gross domestic product (GDP). With 16 million residents, it has nearly a fifth of the national population.

“It’s not easy to run Istanbul, a city more populous than 20 countries in the European Union,” said Aylin Unver Noi, a professor at Istanbul’s Halic University. “It’s a hub, a commercial, financial and cultural centre. It’s a country”, she said, adding that “those who manage to run this city and prove themselves there” open the way to a national platform.

Erdogan has personified this — he grew up in Istanbul and became mayor in 1994, launching a career that propelled him to the country’s top posts.

Erdogan’s twilight?

Erdogan has been in power in Turkey since 2003 when he assumed the post of prime minister. He was elected president in 2014 and re-elected twice since, most recently in 2023.

During his time at the top, he survived many storms, including huge opposition protests in 2013 that engulfed the vast majority of the country and a coup attempt in 2016.

Some analysts had already suggested that losing Istanbul and the capital Ankara to the opposition in the last municipal polls in 2019 signalled a turning point in the fortunes of Erdogan and his party. The huge blow dealt this time around could prove fatal, some observers have said.

Even before Sunday’s poll, Erdogan had suggested that the 2023 election that saw him re-elected president with 52 per cent of the vote would be his last.

Bayram Balci, a researcher at France’s Sciences Po University, says this possibility is now all but certain.

“He is capable of a surprise and deciding to end his career,” he said. It would be “a way to go out in style, all the while remaining faithful to his vision of Islam and his religious beliefs, according to which nothing on this earth is permanent”.

President Imamoglu?

With another decisive victory against Erdogan’s ruling party, Istanbul Mayor Ekrem Imamoglu has cemented a leader’s role within Turkey’s notoriously fractious opposition.

He has the stature, popularity, the sense of media and above all, ambition.

During the run-up to Sunday’s vote, Erdogan pressed his message that Imamoglu — whose name he rarely mentioned — was a “part-time mayor” consumed by presidential ambitions.

The same charge has been levelled by his opponents within his own CHP party.

But since his first victory in 2019, he has faced legal troubles that could mar his political future.

An Istanbul court ruled in 2023 that an Imamoglu remark to reporters that city election officials were “idiots” was defamatory and sentenced him to nearly three years in jail.

It barred him from politics for the duration of the sentence.

Imamoglu has appealed, meaning that he has continued to serve as mayor while putting his fate in the hands of judges whose impartially he questioned.

It is not clear how the case against him will evolve ahead of the next presidential election in Turkey, which is set for 2028.

AFP

As bankers begin from tomorrow to strategise on how to meet the new capital structure prescribed by the Central Bank of Nigeria, CBN, on the eve of the Easter holiday, feelers from stakeholders in the nation’s financial sector point to huge discomfort with certain provisions of the new policy.

Financial Vanguard findings show that the policy effectively excluded banks’ retained earnings, amounting to about N3.85 trillion, from the composition of minimum capital requirements. Consequently, this has generated controversy among banking and investment analysts.

While announcing the new minimum requirement for banks, the CBN in a statement, last Thursday, said, “The minimum capital shall comprise paid-up capital and share premium only”, thus excluding retained income (earnins) and other components of banks’ shareholders funds and making it difficult for most banks to meet the requirment.

While the Paid-up capital is the nominal value of shares issued by bank (mostly pegged at 5 kobo per share) and paid for by shareholders, the Share Premium is the difference between what the shareholders paid for each share and the nominal value of each share.

However, the retained income of banks is profit which was not distributed to shareholders. Vanguard findings show that the top five banks and bank holding companies, have retained incomes of N3.39 trillion, which represents 88 per cent of the combined retained income of the top ten banks. Based on their latest financial statements, the retained income of the top banks are: Zenith Bank with N893.9 billion; UBA, N750 billion; Access Corporation, parent company of Access Bank, N715.13 billion; and FBN Holdings, parent company of FirstBank, N608 billion. If the new policy had not excluded retained earnings, these four banks would have been sitting comfortably above the policy threshold, while GTHoldco, the parent company of GTBank, at N424 billion, would also be on the verge of meeting the threshold. Other banks with significantly high retained earnings are Union Bank, N147.88 billion; Fidelity Bank, N115.8 billion; and FCMB Group, owners of First City Monument Bank with N110.1 billion. Faulting the decision of the CBN to exclude the huge retained income of banks from the minimum capital requirements, a Chartered Accountant and the Managing Partner of Ecovs OUC Nigeria, Andrew Uviase, said: “I don’t think it is fair because if someone have money and he is not using it, then why will you prevent the person from using it, the retained earnings to meet arising obligation?. It is not fair.

“Except it is any other reserve that is not born out of trading activities like if you are talking about revaluation reserves or any other artificial reserve. But if it is retained earnings that somebody earned, would the banks have been better off spending that money and bringing it back. Because you have the right to capitalise retained earnings by issuing bonus shares, you can use it for so many things. “If the banks feel so strongly about it, they should pay out the retained earnings and reinvest it. ‘’You pay out the dividend with the understanding among the major shareholders that if you get this money you are going to reinvest it. You deplete your retained earnings and enhance your capital.” Making the same suggestion, investment banker and a stockbroker, Tajudeen Olayinka, said: “ We still have to await further clarifications on this issue. Except it is completely forbidden by the circular or by any other directive of CBN, a bank can still follow the route of issuing stock dividend at market to pay for rights from its current earnings. “This settles the CBN’s focus on paid-up and share premium conditions.

The company maintains its current valuation but would have its earnings diluted, as more shares are now issued against current valuation. “However, a combination of stock dividend and share reconstruction could settle the potential earnings dilution if done simultaneously. Now, if CBN says no to this route, it follows therefore, that the intention is more economic than a mere fresh capital raising.

In line with Basel III

However, a former Director, Trade and Exchange Department, CBN, said the exclusion of the banks’ retained income from the minimum capital requirement is in line with global best practices based on the requirement of the Basel III international standard for banking regulation.

The former director also averred that the CBN should not allow banks use their retained income in any way to comply with the new minimum capital requirement stressing this will compromise the recapitalisation exercise. Speaking anonymously to Financial Vanguard, the CBN former director highlighted major reasons for the exclusion of retained incomes. “The first is for risk assessment. The CBN aims to ensure that banks have a robust capital base to absorb potential losses and avoid systemic shocks. “By excluding retained earnings, which can be volatile due to business cycles and other factors (such as profits that may arise from Exchange Rate Gains and can also be affected greatly by exchange losses), the focus remains on more stable core capital components, which are Paid up Capital and Share Premium. ‘’The second reason is to ensure quality of banks’ capital. “Retained earnings represent accumulated profits over time.

However, their quality may vary. Some retained earnings might be tied to risky assets or speculative ventures or volatile exchange gains. ‘’By excluding them, the CBN emphasizes higherquality capital components and ensures a level playing field for all banks. ‘’Furthermore, the Core Capital can also more easily be compared to those of foreign banks. “Another reason is for transparency and comparability. Excluding retained earnings simplifies capital calculations and enhances transparency. It ensures consistency across banks and facilitates meaningful comparisons. “Finally is the need for the CBN to align with Basel III standards. The CBN’s guidelines align with international standards (Basel III). These standards emphasize core capital elements (such as paid-up capital and share premium) to enhance financial stability. ‘’Hence the minimum capital base for banks operating in Nigeria will now be Paid-up capital plus share premium.” Also taking side with the decision of the CBN to exclude banks’ retained income, a Communications/ Economy analyst, Clifford Egbomeade stressing that the decision of the CBN will ensure a more accurate assessment of banks’ financial positions. He said: “With the separation of the new capital base from shareholders’ funds and focusing solely on share capital and share premium, the CBN aims to streamline financial reporting and ensure a more accurate assessment of banks’ financial positions.”

Recapitalisation positive for economy

Meanwhile, investment analysts have said the banking recapitalisation will impact positively on the economy, especially in terms of enhancing foreign investment into the country, boosting Naira appreciation, while also prompting mergers and acquisition as well as attracting more pension funds into equity investment. Nnamdi Nwizu, Co- Founder of Commercio Partners, an investment bank, said: “It looks like the whole idea is to ensure fresh capital injection. I think the economy is well positioned to fund the needs. It’s time we see the Pension Funds allocate more capital to equities. We also expect to see a lot of foreign portfolio investors, FPI’s coming to invest in the banks.

“I expect to see M&As, either the smaller banks coming together or bigger banks acquiring those smaller ones. It is almost inevitable.” Also projecting increased foreign investment, Group Head, Global Markets at Parthian Partners, Ronke Akinyemi, said: “The new bank recapitalization requirements by the CBN is a step in the right direction as it will eventually result in a more robust financial system. “Though steep, we believe the time frame given will allow room for the current banks to meet the requirements before the deadline. “Ultimately, we envision that this new recapitalization requirement will result in increased foreign direct investments which will in turn help to stabilize the naira. “Thus, we expect to see rounds of capital raises, especially, with the restrictions of the capital requirement to share capital and share premium. “In addition, we envisage that there will be mergers between tier 1&2 banks and also among tier 2 banks to meet these new requirements.” In the same vein, the immediate past President Chartered Institute of Stockbrokers, CIS, Olatunde Amolegbe, said , “As it were limiting it to just share capital and share premium means most of the tier 1 and 2 banks will be short of minimum capital requirements by an average of 45% and will need to raise fresh capital or downgrade to lower licensing levels. An estimate says that if all the banks were to meet the requirements then they will need to raise an aggregate of about N2t within the next two years.

”While I believe our market has the capacity to provide this capital whether some of the banks on a standalone basis makes sound investments is a different matter entirely. I suspect we are likely to see some mergers amongst the tier 3 banks particularly.” Emphasizing the need for the banks sto start shopping for foreign investors with deep pockets, Uviase, Managing Partner of Ecovis OUC in his recommendations to the banks, said: “There is a time frame for meeting the new minimum share capital. It is not overnight. You have to start the process now, start early enough. “You can start looking for investors, you can start looking for people who will do business with you and have the same thinking with you.

“The immediate thing is you have to enhance the ownership structure, so that it is no longer owned by one or two persons. “You have to also look for international investors, people who have the deep pocket to bring in foreign currency so that when you convert, you will have enough money. “And then they also have to begin to look at how they can enhance their public image and investors’ confidence so that people can be willing to invest. “And then they also have the option of the ones who can stand on their own to come together. That will trigger another round of mergers and acquisition among the small banks.’’

[Vanguard]