Over the past 10 years
Turkish loans have been the staple diet of many banks in the
Euroloan market. Regular refinancings, solid bank groups and
ambitious borrowing plans have helped make the sector one of the
permanent features of the market. However, the two financial crises
of November 2000 and February 2001 severely curtailed lending
activities and, as Colette Campbell
reports, confidence is only now returning.
What a difference a year makes. Just 12 months ago, Turkey was reeling from a double dose of financial crises. The World Bank and the IMF were standing in close attendance and monitoring developments, the political landscape was in a mess and the international loan market was well and truly shut.
But one year on, there are signs of not only recovery but real progress. The economy is growing, the country's politicians are popular at home and abroad, the sovereign has returned to the bond market and international lenders are beginning to recover their appetite for Turkish risk.
And despite the fact that margins and fees remain high compared to two years ago, the few deals that have emerged this year have been well supported in syndication which has resulted in increases of transaction size.
To some extent, such a low volume of deals in the first half was expected. Indeed, the Turkish loan market has had a difficult 18 months, battered by the two financial crises, the first hitting in November 2000 and the second arriving in February 2001 when the value of the lira plunged to almost absurdly weak levels.
arrangers of all Turkish
(Jan 1, 2000-May 8, 2002)
|Position||Bank||Amt $m||No m||Share %|
|3||Mitsubishi Tokyo Financial Group||614.94||28||5.85|
|4||Bank of New York||568.41||24||5.41|
|9||Natexis Banques Populaires||384.78||19||3.66|
|Total eligible issuance||17,561||87||100|
|Source: Dealogic Loanware|
Despite the improvements over the past year, the pain from the financial implosions continues to be felt by Turkish bank borrowers. Ironically, many of them are in much better shape than before the crises in terms of liquidity. But they are still faced with higher margins and fees than before the liquidity freeze in November 2000 as a result of lenders continuing to show caution.
In the case of Koçbank, deposits are understood to have increased by 45% since February 2001. Meanwhile, Türk Ekonomi Bankasi's (TEB) liquidity is understood to be up by 50%. But still they are subjected to higher pricing than before the financial crises. As a result, many of Turkey's banks have chosen to stay away from the market until pricing improves to more attractive levels.
"During the flight to quality experienced in the wake of the two crises in November 2000 and in February 2001, a number of the top tier banks received an increased market share in deposits, thereby making them more liquid and in a stronger position," says Semih Bilgin, assistant general manager at Koçbank in Istanbul. "The need for international borrowing lessened as a result."
However, despite the increase in liquidity, Turkish bank borrowers remain attracted to the loan market as it continues to offer a cheaper source of funding than the bond market. The loan market also offers an opportunity to cement relationships with European lending banks. The $200m loan for Türkiye Garanti Bankasi is a case in point: Garanti claims that the main reason it tapped the market in April was to stand by lenders that had stood by them during the crises.
Although it has been a difficult start to the year, international lender appetite for Turkish risk is gradually flowing back as stability returns to the country - thanks, in most part, to the continued funding from the IMF and the World Bank (a $1.5bn loan from the World Bank was signed in April) and the implementation of structural reforms.
As well as the increased stability, lenders are also tempted by the high pricing on offer. Indeed, with lenders still loath to offer all-in pricing of less than 220bp over Libor, the return on Turkish credits is excellent.
However, Turkish borrowers are unhappy that the perceived increased stability is not being reflected with better pricing and wider tenors." We are at the classic stage in the Turkish loan market," says one Turkey bank expert in London. "The lenders are still able to charge high pricing and short tenors because the memories of the financial crises are still vivid. But the borrowers believe they, as well as the sovereign's economic health, have improved greatly and that they should be able to secure cheaper and longer loans. We will have to see what exactly happens, but my guess is that the borrowers will get their way because the lenders will, at the end of the day, want the business."
Koçbank beats Garanti
Garanti - which is one of Turkey's top private banks - was expected to be the first Turkish bank to hit the market in 2002. But protracted pricing negotiations with its arranging banks slowed its entry, and Koçbank beat Garanti to it.
The Koçbank deal was a $100m one year refinancing which proved a runaway success and was closed oversubscribed and increased to $200m. The one year facility pays a margin of 80bp over Libor. Four tickets were on offer: co-arrangers for takes of between $7.5m and $10m for 140bp, lead managers for $5m for 130bp, managers for tickets of $3m for 125bp and participants $2m for 122.5bp.
Despite the poor market conditions, the pricing on the deal was marginally better than on Koçbank's September 2001 transaction, a $160m one year facility that carried a margin of 90bp over Libor and offered a top ticket of $7.5m for 150bp.
Koçbank is planning to tap the market again in October when a $160m facility is due to mature. Convergence understands that Koçbank will be looking for a one year maturity with a one year rollover option for this facility.
In April Garanti, perhaps spurred into action by Koçbank, eventually mandated a group of 14 banks to arrange a $200m one year facility.
The loan carries a margin of 80bp over Libor. Four tickets were on offer with co-arrangers asked to commit between $7.5m and $10m for 140bp, lead managers $5m for 130bp, managers $3m for 125bp and participants $2m for 122.5bp.
The steep rise in pricing for Turkish banks is apparent when comparing this deal to the last two times that Garanti tapped the market: in October 2000 it launched a $225m one year facility which paid a margin of 45bp over Libor and an upfront fee of 65bp for $15m. Just before the second crisis hit in February 2001 Garanti managed to jump into the market to refinance a Eu400m one year deal that carried a margin of 55bp.
Perhaps as a result of the combination of increased pricing and the lack of Turkish paper seen so far this year, Garanti's latest loan was well received in the market and secured a sizable oversubscription, resulting in the loan being increased at signing to a more than respectable $350m. Bank of Tokyo-Mitsubishi, Mizuho, Deutsche Bank, Sumitomo, ING, Standard Chartered, Alpha Bank, Bank of New York, Commerzbank, Dresdner Kleinwort Wasserstein, HVB Group, RBS, Toronto-Dominion and Wachovia Bank arranged the deal.
Akbank after audit
Akbank, another of the top four private Turkish banks, opted to stay away from the loan market for the first quarter of 2002.
The bank entered the market twice in quick succession at the end of last year. It raised a $350m one year bullet facility in September and then in December it secured a $230m one year bullet facility. The December deal was arranged by HVB Group, Bankgesellschaft Berlin, Mizuho, First Union National Bank, Bank of Tokyo-Mitsubishi, Citigroup/SSSB, Dresdner Kleinwort Wasserstein and Sumitomo. Both deals paid a margin of 80bp over Libor.
In 2002, the bank will be looking to refinance the loans, which are due to mature in October and in December. The plan is to roll both loans into one and refinance in October 2002.
The borrower hopes that it will be able to secure more relaxed terms after the triple auditing process of Turkish banks is completed.
Akbank is not alone in believing that the completion and outcome of the triple audit process will shape the long term direction of the Turkish loan market.
The triple audit of the banking sector is a one-off process designed to identify non-performing loan portfolios that weaken the capital structure of the banks.
It is the first stage of a banking system restructuring programme. PricewaterhouseCoopers (PwC) has been auditing the non-performing loan portfolios (NPL) of each bank.
This will make banks eligible for recapitalisation under the new capitalisation laws being regulated by the Banking Regulation and Supervision Agency, which stepped in after the crises and began talks with each Turkish bank in order to understand their position. Its aim was to establish how much capital they had lost and how much recapitalisation was needed in order to make funding from the government a viable option.
In June the banks to be recapitalised will be sent a letter to begin the process of seeking capital support from shareholders and then in turn from the government.
Other Turkish banks such as Vakiflar Bankasi, Türk Economi Bankasi (TEB) and Türkiye is Bankasi have also stayed away from the market this year.
TEB will be looking for a refinance at the end of October. This financing will make up part of the borrower's funding base for 2003.
The borrower last tapped the market in November 2001 with a $100m one year bullet facility. The deal paid a margin of 90bp over Libor.
The deal was arranged by Alpha Bank, Bank of New York, Commerzbank, HVB Group, Standard Bank, Bankgesellschaft Berlin, Bank of Tokyo-Mitsubishi, First Union National Bank and Natexis Banques Populaires.
Isbank may also tap the market in November of this year for a refinancing. Isbank last tapped the market in November 2001 for a $350m one year facility. That deal paid a margin of 80bp over Libor with a top fee of 140bp for $10m. A total of 15 banks joined the deal as mandated arrangers.
Turkey's EU aspirations
Turkey has clear EU aspirations but the last two crises may have pushed any hopes of joining further away. "Turkey has been interested in EU membership since the early 1960s," says Semih Bilgin at Koçbank. "Some 40 years later it is still on the border. Turkey is optimistic though and feels that an indication of the timetable for them to join may be available in Copenhagen this year and views full membership thereafter as a definite possibility by 2010."
Many Turkish bankers believe that with continued structural reforms the country will be able to meet the Maastrict treaty criteria.
Tackling inflation and persisting with the free floating peg would certainly encourage a strong healthy banking system and in turn better pricing and longer tenors for Turkish borrowers.
|Volume of all
loans to Turkish banks 1992-2002|
(May 8, 2002)
|Source: Dealogic Loanware|
With a GNP at 9.4%, 2001 was a very difficult year for Turkey. However, realisation of how deep the crisis had hit forced the country to make reforms and Turkey now has an increasingly strong base and improved infrastructure to work from. After the crisis some 19 banks were taken over by watchdog agencies.
"The existence of the weaker banks distorted the proper function of the market," says Hülya Kefeli at Akbank. "During the flight to quality the credible, stronger banks were able to gain market share. The real challenge is to bring down inflation while continuing to stimulate growth at the same time."
Heightened fiscal discipline, continued implementation of structural reforms, the rehabilitation of the banking system and the support from the IMF and World Bank all lend credence to this renewed optimism, she adds.
One of the most important factors for Turkey is the continued stability of the government. "The present government is politically strong, stable and committed," says Egemen at Garanti. "It is also thought that it is going to be the first government to finish a full term in the last 40 years."
With the upgrading of Turkey's credit rating by the agencies, causing a more positive outlook, Turkish borrowers are also optimistic for a sovereign upgrade by late 2003 which they hope will impact directly on the loan market.
A great deal of consolidation has been earmarked for Turkey with many of the Turkish banks keeping a sharp eye on possible partnerships with international banks in order to gain market share and also access to a large balance sheet for short term capital needs.
Vakif is one the leading retail and commerical banks in Turkey and has a market share of 10% of retail business. With 75% up for sale, Vakif is in the middle of a privatisation process and securing funds is not a top priority for the bank.
The due diligence process is under way and an outcome will be clear by the middle of the summer when Vakif will tap the market for a refinancing.
The privatisation of Vakif has attracted the interest of a number of banks including SG and TEB. SG is thought to be the hot favourite to secure the state bank.
Other international banks understood to be interested in possible Turkish partnerships include Citigroup/SSSB and Unicredito. TEB has held discussions with Citigroup/SSSB in the past.
Koçbank is understood to be in talks with Unicredito, while HSBC has already made the move by acquiring Demir Bank. *