The Turkish banks occupy a curious and well organised corner of the syndicated loan market. Half a dozen leading banks refinance their loans every spring and autumn. Each time, there is a going rate — most of them pay the same margin.
In February-March this year, the Turkish bank phalanx, led as usual by Akbank, obtained a 25bp cut in margins, to 250bp for dollar debt and 240bp for euros.
That was a relief after the 140bp increase they had swallowed in September, after Turkey’s lira had plunged as low as TL6.95 to the dollar.
This time, the tide has turned again. Last Friday Moody’s downgraded Turkey to B1; this week it has knocked 16 banks down a notch, leaving them on negative outlook. Ziraat Bank and Vakifbank fell two notches.
After the downgrade, an official at a top Turkish bank was almost certain the banks would have to pay more for debt come September. Lenders are banking on a 25bp hike.
The puzzling thing is: these highly sophisticated international banks ought to have intimate knowledge of the financial health of the Turkish banks they lend to. Why does a change of view by Moody’s move the market?
It is difficult to gauge how much the banks are influenced by Moody’s; how much ratings crank mechanical pricing models; and how much the downgrade just acts as a fixed point around which the market’s disorderly change in sentiment can crystallise.
Or perhaps, Moody’s fulfils another useful function. Lenders can raise margins without compromising their longstanding relationships with Turkey’s banks — after all, they have the rating agencies to blame.