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Covered Bond Debut Lures UniCredit as Banks Expand Lending: Turkey Credit

March 12, 2012

A pedestrian using a mobile handset passes a Sekerbank TAS branch in Istanbul, Turkey. Photographer: Kerem Uzel/Bloomberg

A pedestrian using a mobile handset passes a Sekerbank TAS branch in Istanbul, Turkey. Photographer: Kerem Uzel/Bloomberg

Turkish banks are winning the confidence of Italy’s biggest lender as it leads the nation’s first sale of asset-back securities known as covered bonds.

UniCredit SpA’s Turkish joint venture is underwriting a program for Istanbul-based Sekerbank TAS (SKBNK) to raise 800 million liras ($448 million) through arranging the sale of securities backed by loans to small and medium-sized businesses in Turkey. UniCredit bought 117.6 million liras of the covered bonds to sell on to foreign lenders after underwriting the equivalent of 408 million liras of the same debt last year, Sekerbank said in a March 8 filing with the Istanbul Stock Exchange.

Banks are seeking to broaden their funding sources after lending in Turkey surged by more than twice the pace of deposits last year in an economy expanding the second-fastest in the Group of 20 after China. Sekerbank’s covered bonds due between one and five years were priced last year to yield 250 basis points more than the London interbank offered rate. That’s less than the 300 basis-point spread for euro-denominated covered bonds due 2014 sold last August by OTP Bank Nrt., Hungary’s biggest lender, which is ranked a level higher by Moody’s Investors Service.

“There is potential for other Turkish banks to go the same way as Sekerbank,” Sabrina Miehs, a credit analyst at Standard & Poor’s in Frankfurt, said in a phone interview. “There’s a growing middle class and there are a lot of small and medium- sized enterprise loans on the balance sheets of the banks, a lot of other Turkish banks have the same portfolios.”

Lending Boom

Three more Turkish banks plan to sell covered bonds, according to Milan-based UniCredit. The securities are backed by mortgages or public-sector loans as well as guarantees from the issuer.

Banks increased lending to businesses and consumers by a record 39 percent in the year to last August and by 30 percent overall in 2011. That was more than double the 13 percent increase in their deposits, according to data released by the Banking Regulation and Supervision Agency on its website in February.

Turkish lenders are charging an average 14.5 percent in annual interest on business credit, a jump from 8.7 percent last year, according to data on the central bank’s website as of Feb. 24. Rates rose to a three-year high of 16 percent in January after the central bank lifted banks’ reserve requirements to crimp lending growth it said was feeding a record current- account deficit of more than 10 percent of gross domestic product.


Akbank TAS (AKBNK), the Turkish bank part-owned by Citigroup Inc. (C), may sell mortgage-backed covered bonds this year, Deputy Chief Executive Hulya Kefeli said in an interview in Istanbul on Nov. 22.

The yield on Akbank’s dollar-denominated bonds due in 2018 dropped to a seven-month low of 5.94 percent on March 9, compared with a yield of 8 percent for bonds due in 2020 with the same rating of Ba1 from Moody’s Investors Service sold by Brazil’s Banco Industrial e Comercial SA.

UniCredit sold Sekerbank’s covered bonds issued last year to the International Finance Corporation, the European Investment Bank, the European Bank for Reconstruction and Development and the Netherlands’ Entrepreneurial Development Bank, said Muge Eksi, head of capital markets in Istanbul at UniCredit Menkul Degerler AS, a joint venture of the Milan-based bank.

“So far we sold only to foreign investors,” Eksi said in an e-mail on March 8. “We hope to sell more to Turkish investors in the new offering. As the product gets to be better known, the demand will definitely increase.”

Default Swaps

Yields on two-year government bonds in lira climbed 11 basis points, or 0.11 percentage point, to 9.29 percent by 1:19 p.m. in Istanbul, data compiled by Bloomberg show.

The extra yield that investors demand to hold Turkey’s dollar-denominated bonds rather than U.S. Treasuries rose four basis points to 312, while the average spread for developing- nation debt was unchanged at 343, according to JPMorgan Chase & Co.’s EMBI Global index.

The cost to insure Turkish bonds against non-payment using credit-default swaps dropped two basis points to 220, the lowest since August, according to data from CMA, which is owned by CME Group Inc. and compiles quotes by dealers in the privately- negotiated market. The spread is 178 for Russia, rated three levels higher by Standard & Poor’s, 182 for Poland and 158 for South Africa. The contracts would pay the buyer face value in exchange for the underlying securities or cash.

The lira declined 0.6 percent to 1.7975 per dollar, trimming this year’s rally to 4.9 percent. The cost to exchange lira payments for dollars using two-year cross currency swaps rose four basis points to 7.35 percent.

OTP Bonds

Sekerbank’s covered notes are backed by loans owed directly to the bank. This differentiates them from other asset-backed securities including the U.S. subprime mortgage debt that helped trigger the global financial crisis, said Jose de Leon, a credit analyst at Moody’s in Madrid. Subprime home loans were spun off from banks’ balance sheets and then packaged into bonds known as collateralized debt obligations.

Moody’s rated the Sekerbank bonds A3, the seventh-highest investment-grade ranking and six levels above the bank’s own Ba3 rating because of the collateral underlying the securities.

OTP’s covered bonds yielded 5.48 percent, according to bid prices on Bloomberg from BNP Paribas SA, compared with 10.07 percent for the Budapest-based lender’s euro-denominated bonds due in 2016.


“There might be some appetite from Turkish domestic investors for covered bonds,” de Leon at Moody’s said in a phone interview on March 8. “The question is whether international investors will want to go into Turkey.”

The Turkish government has helped stimulate the development of a covered bond market with legislation modeled on European laws, S&P’s Miehs said.

“The hope for Turkish banks is that there will be a local investor market, so that Turkish banks will invest in Turkish covered bonds,” she said. If that happens “it’s much more probable that foreign investors also enter into the market,” she said.

To contact the reporters on this story: Jason Webb in London at; Sibel Akbay at

To contact the editor responsible for this story: Gavin Serkin at

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