Turkish financial institutions are whipping up a storm again. Akbank, that notoriously tough negotiator, has dismayed lenders by launching a tight dual tranche one and two year facility, priced at just 100bp and 125bp, respectively.
Akbank is the first of Turkey’s top tier financial institutions to make a formal approach to the market in 2013. While the bank has broken the trend of the past two years and asked for a maturity longer than 12 months, it’s the 100bp all-in pricing of the one year portion that has thrown lenders into disarray. The price attained by Akbank traditionally sets the pricing standard for the rest of Turkey’s banks.
Lenders can afford this return but it has made them nervous. Akbank’s 100bp request — the same price that the bank paid in 2011 — means that lending banks will have their backs against the wall if, like last year, Turkish bank borrowers push for a second round of price cuts for their summer refinancing loans.
Breaking through the psychologically important 100bp price would leave loans officials in territory not seen since 2008, when Akbank secured a €1bn facility with an all-in of around 75bp.
But Turkish banks are right to try and sign cheaper loans. Although lenders say that they are already being stretched to breaking point by low prices, they have not followed these protests up with action. They have bent to every request a top tier Turkish bank has made in the last year, regardless of how extreme it seemed at the time.
Isbank caused uproar when it approached bankers for a 10bp cut in benchmark pricing of 145bp last June, only for Akbank to beat its rival to the punch and sign a loan at the new reduced 135bp all-in pricing in August. It’s hard to imagine Akbank felt anything other than completely validated in its choice to cut the price after lenders oversubscribed its deal.
Garanti caused the same level of outcry in November when it too wanted to slice 10bp off of the new benchmark to borrow at 125bp. Again, bankers placated the demand with such enthusiasm that the borrower scaled back commitments.
Lenders have long shown Turkish banks that they can get away with whatever they want, and it is bizarre that lenders should complain when they try to. Funding costs do not only affect western European banks.
And let's not forget the Turkish sovereign upgrade. Fitch upgraded Turkey to investment grade in November and the other agencies are widely expected to follow suit. Turkey had debt in 2011 that was more in line with the 40% of GDP median of Baa3-rated investment grade credits than its sub-investment grade peers, according to Moody’s. This is a mighty bargaining chip considering the sovereign debt problems that are still swirling around Western Europe.
Loans bankers have dismissed the impact that upgrades have on loan margins, claiming that it has been priced in. But Akbank cited Fitch’s upgrade as one of the reasons it shaved its margins last year. Whether or not lenders agreed with this, it’s hard to believe that further cuts aren’t possible if Moody’s and S&P issue upgrades when lenders have already allowed a price drop on a ratings bump.
A history of pandering to Turkish demands and an increasingly likely future of investment grade ratings means that — despite lenders’ vocal complaints — nothing will stop Turkish banks’ march to sub-100bp loans.