Turkish banks are set to price this spring's round of syndicated loans much more tightly than last year's, after a pronounced improvement in lenders' appetite for the country's risk since Turkey's election in May 2023.
The Turkish government on Friday received its first credit rating upgrade for over a decade when Fitch raised it from B to B+.
Akbank, traditionally the bellwether bank, and Ziraat Bank are in the market with their traditional spring loan refinancings.
“There is increased appetite, both in terms of new lenders coming in, or the existing lenders increasing their participation,” said a banker working on one of the loans in Istanbul. "And we anticipate that it will be an oversubscribed transaction."
A banker working on on one of the loans in the United Arab Emirates said: "There is a definite price change; pricing has been squeezed. Banks are happy to bring loans to a tight pricing in the market and borrowers are confident to get the liquidity they want.”
Akbank’s loan has 367 day tranches in dollars and euros, being offered at all-in margins of 250bp over Sofr and 225bp over Euribor, according to a source at Akbank. The deal will be around $500m-equivalent.
It refinances a pair of 367 day loans signed in April 2023. The $245.5m and €233m tranches had all-in margins of 425bp over Sofr and 400bp over Euribor.
Akbank is therefore coming this year 175bp tighter. It is even coming tighter, on the dollar side, than in spring 2022, when its $700m-equivalent deal was priced at 275bp over Sofr and 210bp over Euribor.
In spring 2023, there was widespread dissatisfaction in international capital markets with Turkey's economic policy, which was seen as erratic.
But after returning to power again after the May general election, President Recep Tayyip Erdogan installed a more orthodox economic policy team and the government's actions since have reassured investors.
Fitch attributed its upgrade of Turkey to its adherence to conventional economic and monetary policies in the past 10 months. The positive outlook it has maintained raises the possibility of further upgrades.
The new sovereign rating has not on its own changed Akbank's pricing, “as the pricing that we went out with was already reflecting this expectation” before the upgrade, said the banker in Turkey.
“If there are some other upgrades that may come from other agencies, then obviously this would require another review, but most probably any further changes will take place in the second half of the year.”
Turkey has also been rehabilitated in the bond market, where the government, banks and companies are expected to increase issuance after a busy start to 2024.
“The economic outlook is reflecting the increasing appetite,” said the banker in Istanbul. "Last year we were approaching general elections, and there was a bit of uncertainty around the macro policies that may be applied after the elections or even who may win the elections.
“Now, all those uncertainties are behind us, and the newly appointed finance ministers, including the central bank administration, seem to be appreciated by market participants.”
Local elections will be held in Turkey at the end of March. April will be “a good time to know what the liquidity looks like” post-election, said the banker in the UAE.
The overall sentiment, however, is that the coming election will not influence conditions, but rather that investors' trust has been regained.
Although bond issuance is bouncing back, the same has not yet happened in loans.
“The two won’t be interrelated,” said the banker in Istanbul, "because the [Turkish banks'] loan volumes have already dropped over the past two years, both as a result of deleveraging on the [foreign currency] loan book side, as we don't have a lot of growth on the export side. And obviously there was some decreasing of the general appetite for this type of risk.
“On the borrower side, there wasn't also a lot of appetite to continue to roll over the same sizes, given the pricing... nor did lenders want to have the same amount of risk.”
Dollar and euro syndicated loans signed in Turkey have contracted from $33.5bn-equivalent in 2021 to $21.4bn in 2022 and $20.8bn last year, according to Dealogic.
“Pricing in loans and bonds seems to be similarly tightened up,” said the UAE banker. “I don’t think they [loans] will drop much [in volume], they will roll over the existing [size] levels, based on the liquidity, because they have tightened the pricing.”
Oversubscribed deals may not lead to increases. If “the book sizes are around 120% to 130% of the rollover amount, the [borrowing] bank may still scale back those amounts and continue with only 100% rollover,” said the banker in Istanbul. “So it will not probably be a decrease in the syndication, because they have already been reduced to a certain level. But the bonds issued may limit increases in size.”
All proceeds from Akbank's loan will be applied and reported according to its Sustainable Finance Framework.
Although Akbank like other Turkish banks has issued loans with pricing linked to sustainability key performance indicators in the past, Turkish bankers have told GlobalCapital that they are trying to transition from these to loans with a sustainable use of proceeds, as lenders find it difficult to justify ESG KPIs for banks.