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Turkish loan margin cuts should come as no surprise

If angry lenders are looking for someone to blame for Isbank’s attempt to undercut the Turkish FI pricing benchmark, they should begin by looking close to home.

Lenders heaped criticism on Turkish banks last week as some prepared to shave 10bp off their loan margins in response to Isbank’s attempt to undercut the year’s benchmark level. The accusation levelled at Isbank was that it was doing this just because it could.

But the rage is misplaced. Instead of blaming Turkey’s top banks, lenders should be taking responsibility themselves for handing Isbank the power to try such an audacious move.

Turkish banks have never played by the same rules as other borrowers. Ample ancillary business has always been available and, more importantly, dished out fairly to creditors.

As such, loan pricing has remained well below levels seen in other parts of the emerging market loan market. This trade-off between ancillary wallet and loan price has never been more apparent than last year. In November, even after panic surrounding the Greek sovereign crisis ratcheted up over the summer, Garanti got a loan away at a breathtaking 100bp all-in.

In that cut-price context, it is hard to understand why Isbank provoked so much outrage. The argument put forward by bankers that prices are rising across emerging markets — and therefore should also be in Turkey — is simply cherry-picking the facts to suit. The sheer amount of ancillary business that Turkish FIs offer makes them, and their loan prices, incomparable with other borrowers across the region.

Of course there must be a pricing floor, but an agreement to lend at 100bp in 2011 gives Isbank a strong reason to suggest that they are still far from reaching it.

Perhaps it is not so much the act itself but the reasons Isbank gave that prompted the ire of lenders. The bank cited improved credit ratings from Moody’s, tightening CDS levels and even Spain’s austerity commitments as reasons for a cheaper loan.

Bankers feel rightly miffed about this, as Isbank is also cherry-picking facts to help its negotiations. If Turkish FI loans were truly based on macroeconomic factors, they could expect to be priced with a pre-fee margin higher than the 200bp that the better rated Standard Bank of South Africa paid for its $1.25bn loan in May.

Nonetheless, these reasons, no matter how contrived they seem, were probably easier for lenders to swallow than the other likely motive for cutting prices, a legacy of years of loans bankers falling over themselves to pamper the borrower and build up a cast-iron relationship.

Isbank is not doing this just because it can, it is doing this because its lenders have allowed it to.

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