(Recasts, adds details)
By Asli Kandemir
ISTANBUL, May 15 (Reuters) - Turkey has appointed a veteran Islamic banker to oversee its $820 billion banking industry, reflecting Ankara's drive to bolster Islamic finance and potentially raising further concern about political influence over the sector.
Mehmet Ali Akben, the new president of the BDDK watchdog, was quoted as saying that Islamic lenders would bolster the financial industry, in line with the "New Turkey" - a term coined by President Tayyip Erdogan and referring to his vision for a fast-growing economy and a more religious society.
"In the New Turkey process, the industry will adopt new policies in line with the state policies," Akben was quoted as saying by state-run Anadolu Agency. "The BDDK will be stronger ... and will involve all segments of the sector."
The government announced his appointment in its official gazette on Friday, two weeks after the former chief passed away.
Secular banks dominate the Turkish banking sector, with the main players including Isbank, Akbank, Garanti, Ziraat and Halkbank.
Islamic banks account for about 5 percent of total banking sector assets.
The government issued a debut $1.5 billion Islamic bond three years ago and last year presented a legislative framework to encourage publicly owned Islamic banks. It wants Islamic banks to double their assets to $100 billion by 2023.
The Turkish constitution stipulates that the banking watchdog is an independent institution.
However, regulators' takeover of the management of Islamic lender Bank Asya in February raised concerns about political interference in the sector.
Bank Asya's profits and capital base had been eroded after it became caught up in a feud between Erdogan and a U.S.-based cleric whose followers founded the lender.
The government said at the time that the regulators' move to take control was not politically driven and that the bank had failed to meet legal criteria.
However Standard & Poor's said the incidents surrounding the bank showed the potential for political risk to spill into the financial system.
Akben worked at various Islamic financial institutions for more than 20 years, including Kuwait Finance's Turkish branch Kuwait Turk. He most recently worked at another financial regulator, the Saving Deposit Insurance Fund.
The new BDDK chief takes over at a time when Turkish banks are grappling with slower economic growth at home in recent years.
Banks' return on equity (ROE) averaged 11.4 percent in 2014 and could fall to 10.4 percent this year, according to the industry group. Global emerging market banks average an ROE of around 14 percent according to Thomson Reuters data.
They also face a fall-out from the lira currency's tumble this year, Moody's warned this week, saying the sell-off could push up loan repayments on foreign-currency loans, ultimately hitting bank credit profiles.
Akben's predecessor Mukim Oztekin had been on leave since November last year due to health issues.
Although Akben's appointment had been decided in March, it was not announced until Friday, two weeks after Oztekin's death.
In the interim period, the BDDK had been run by Mutalip Unal, vice president of the watchdog. (Writing by Ece Toksabay; Editing by David Dolan and Pravin Char)