They have turned to funding instruments supported by institutions such as the European Investment Bank and the European Bank for Reconstruction and Development, to access finance at below market levels, rather than borrow money directly.
State-controlled Vakifbank raised $300m of 10 year money through a diversified payment rights (DPR) securitization this week — a capital markets tool which uses offshore payment flows to secure the bonds and achieve investment grade. Vakifbank did not disclose who arranged the deal or who bought it, except that it was said to have been an international investment bank.
Recent issues from other Turkish banks have often been bought in part by the EIB, EBRD and the World Bank’s International Finance Corp, which usually attach conditions to the financing such as on-lending to SMEs, female-owned business, or into deprived areas.
“MDBs have partnered with the Turkish banks on lots of new instruments,” said Luca Lazzaroli, director general and deputy head of operations at the EIB. “Asset-backed securities, domestic covered bonds, SME covered bonds, DPRs, all of these are relevant,” he said. “At this point in time, markets are taking a cautious stance on Turkey, but the capital markets are not closed to DPRs.”
“We use our internal pricing methodology based on expected losses,” he added. “We do grade on credit criteria, but we don’t operate like a bank. We lend long term, and don’t need to reflect the trend in the market.”
Hopes are high among investors that Turkey’s troubles will ease soon, amid reports that Turkey and the United States have reached a deal on the release of evangelical pastor Andrew Brunson, who has been detained on terrorism charges — a move which led to US sanctions against Turkey. Brunson was due at a court hearing on Friday.