High demand for Eurobonds of Turkish banks

By Bahattin Gonultas and Tuba Sahin

ANKARA (AA) - Five major Turkish banks comfortably raised $3 billion in the Eurobond market within the first four months of the year, according to bank statements filed at Borsa Istanbul.

Bond issuance was four times oversubscribed from approximately 300 accounts despite some economic and geopolitical risks in the global economy, the statements reveal.

The banks aim to diversify resources and extend financing opportunities to customers.

Bond issuance drew huge interest from international investors based in the Middle East and Asia, as well as from the U.S. and Europe.

The high demand indicates an ongoing interest in the Turkish economy and the belief in its sound economic foundation, according to analysts.

On April 27, state lender Ziraat Bank issued international bonds worth $600 million that will mature in 2022 with a 5.125 percent coupon.

Isbank -- Turkey’s largest privately-owned bank by assets -- sold $750 million bonds that would mature in April 2024 in the international market.

Garanti Bank issued a $500 million Eurobond; Akbank ($500 million) and Yapi Kredi ($600 million).

Ferhat Yukselturk, managing director of Turkey Macro View Consulting, told Anadolu Agency on Tuesday that 2007 started with a significant emerging market rally, hence capital inflows to emerging markets reached 2013 levels.

"Moreover, corporate and sovereign bond issuance in emerging markets reached a record high during the first quarter of 2017 when positive sentiment towards emerging markets increased on the back of a favorable growth outlook," Yuksekturk said.

He said the demand for Turkish assets had been limited until the end of January.

"This was due to rising geopolitical tensions, political uncertainty ahead of referendum on constitutional amendment contrary to Turkey’s solid macroeconomic fundamentals with stable growth performance, strong fiscal balance and a well-capitalized banking sector," he said.

According to Yukselturk, negative news about Turkey’s economy has dissipated since February while demand for Turkish assets soared and started to catch up with global emerging markets.

"As a result, Turkish Treasury and Turkish banks increased their Eurobond issuance significantly in line with other emerging market countries since January in order to benefit from this catch-up process and effort to take advantage of relatively low interest rates before the U.S. Federal Reserve tightened its policy this year," he said.

There is no problem for Turkish banks to issue Eurobond since they have strong capital and profitability performance with high asset quality, Yukselturk added.

Ziraat Bank’s economist Bora Tamer Yilmaz said credit impulse picked up in the first quarter on the back of economic recovery.

"There is a clear positive divergence in Turkish credit growth compared to emerging market peers causing banks to look for alternative funding sources," Yilmaz said.

Gross financing requirement of Turkey stands at about $180 billion for 2017 which is mostly a roll-over issue.

In the real sector, roll-over ratios hover above 100 percent while banks keep it a little lower than 100 percent, which is a deliberate choice based on their own cost analysis.

"The duration of foreign financing gets extended which makes the economy stronger against external shocks. Eurobonds provide long-term financing for banks.

“With diverse international investor bases, Turkish banks are preferred by the global investment community that reflects the potential of the sector.

“Turkey can manage to meet its financing requirement with longer-term foreign direct investment and foreign borrowing as well as short-term fund flows. Positive data flow keeps risk appetite for Turkish assets strong," Yilmaz added.