Turkish banks are seen in need of $6bn refinancing

A 100 lira banknote is seen on top of 50 lira banknotes in this picture illustration in Istanbul. At least nine Turkish lenders have to complete annual dollar loan syndications by year-end, leaving an industry heavily reliant on overseas funding.

Turkish banks may have to pay up once again as they rush to meet $6bn of financing deadlines amid the country’s worst economic crisis in years. At least nine lenders have to complete annual dollar loan syndications by year-end, leaving an industry heavily reliant on overseas funding, little time and few options to conclude deals often involving dozens of global banks.  Akbank Turk AS, Turkiye Is Bankasi AS and state-owned Export Credit Bank of Turkey are at the head of the queue, as they are yet to finalise deals that entered syndication in July, days before the nation’s crisis began.

“The situation is definitely worse than other crises that Turkey has been through,” said Reza Karim, a London-based credit analyst at Jupiter Asset Management. “Pricing will certainly have to be changed.” The Turkish bank loans will provide a key test of the nation’s ability to tap overseas debt markets amid US sanctions that have cooled the economy, driven the lira to record lows and pushed yields on sovereign bonds maturing in March to about 9%. Local crises have previously forced pricing concessions by Turkish banks, which have borrowed at least once or twice a year from the same pool of overseas lenders for decades.

“We expect loan pricings to go up,” said Okan Akin, a London-based credit analyst with AllianceBernstein. “It’s only logical that every Turkish asset would have to be repriced reflecting new market realities.” The nation’s banks traditionally get dollar loans because rates are lower than in the lira market. Local companies borrowing these funds then face a currency risk as they have to use lira revenues to repay dollar debt. Akbank, Isbank and Export Credit Bank all marketed loans at an all-in pricing of no more than 165 basis points above benchmark rates before the turmoil began, including a margin of as much as 130 basis points for dollar commitments. The subsequent US-Turkish standoff – centred on a detained American pastor – has since sparked a rout in Turkish assets. The cost of insuring Akbank’s debt using five-year credit-default swaps has doubled since April to 684 basis points, according to CMA data.

Representatives of the three banks didn’t respond to requests for comments by phone and e-mail. Lenders may have to seek support from the government or central bank in the event of a “prolonged closure”’ of the wholesale market, or else “materially deleverage,” Moody’s Investors Service said in an August 28 note as it downgraded 20 Turkish financial institutions. The nation’s lenders had about $186bn of foreign-currency funding as of June, equal to about 75% of total wholesale funds, according to Moody’s. The banks need to refinance $77bn of foreign-currency wholesale bonds and syndicated loans, or 41% of total market funding, within the next year, the ratings provider said.

Sources and photo-credits: Gulf Times, Bloomberg