Akbank’s new sweet-spot tenor will lead way for peers
A 367 day loan? Could that have been designed to tick a regulatory box? Of course it could. But don’t scoff — banks have always gone right up to the line of compliance — and they always will.
Everyone knows the 364 day revolver, of which many thousands have been provided and syndicated to borrowers of all kinds in recent decades. Well, now it has a new twin: the 367 day loan.
Like its better known relative, the 367 day loan is clearly designed to comply with a regulation — just.
For many years, 364 day loans have satisfied borrowers’ requirement for one year financing, while being treated for the purposes of capital regulation on the banks lending the money as less than one year.
Now, the 367 day loan has appeared, which counts as more than one year for bank regulators, though it is really a one year loan in all but name.
Last week, Akbank launched a deal that includes both siblings — the 364 day tenor typical of Turkish banks' loans and a novel 367 day tranche. Presumably it is not 366 days because the loan is expected to become a template for future deals, and future years will include leap years.
Why bother? The Turkish central bank, TCMB, is making a new push to give preferential capital treatment to banks that have funding longer than one year.
TCMB says it has revised the reserve requirement ratios of foreign currency liabilities of banks and finance companies to encourage the extension of maturities of non-core liabilities. It is doing so with a “view to supporting financial stability and by taking into account the latest developments in global markets”.
Whether it will be pleased with Akbank’s response remains to be seen.
Akbank could be accused of complying with the regulation in letter, but not in spirit. But as the ubiquity of the 364 day instrument proves, among banks, ’twas ever thus. If the central bank wanted two year loans, it should have said so.
Akbank’s deal is still a one year loan and re-emphasises the well-known reluctance of Turkish banks to go beyond one year funding. Why go to two year loans when you only have to pay more — and when foreign lenders continue to show that they are more than happy to pile in twice a year to big rollovers?
The extra days are not a technicality for lending banks, however. Providing loans of more than one year could affect their own regulatory capital treatment. Akbank will pay them 10bp extra for doing so — the success of the deal will show whether that is adequate compensation.
What we know is that where Akbank goes first, other Turkish banks usually follow. If this trick works, you can be sure it will win the full attention of all its classmates.