Turkish Banks Get Some Relief as Foreign-Borrowing Costs Drop
Pedestrians pass a closed branch of the Turkiye Is Bankasi AS, also known as Isbank, on Istiklal street in Istanbul, Turkey. (Photographer: Nicole Tung/Bloomberg)

Turkish Banks Get Some Relief as Foreign-Borrowing Costs Drop

(Bloomberg) -- It’s getting cheaper for Turkish banks to raise foreign debt as the economy shows signs of avoiding a 2019 contraction and the government takes steps to deal with bad loans.

The lira’s recovery from its crash late last year is also helping some lenders cut interest rates on syndicated loans by as much as 10%. That’s even though the average credit rating of the banks are two notches lower at Moody’s Investors Service than a year ago, and three places down from where they were at the beginning of 2018 at Fitch Ratings and S&P Global Ratings.

“The gradual improvement in the operating environment, as evidenced in the drop in Turkey’s credit default swaps, and a decline in global interest rates, led to lower borrowing costs,” said Cagdas Dogan, a banking analyst with BGC Partners in Istanbul. “This trend should continue but there could be a floor on the costs unless there are rating upgrades.”

President Recep Tayyip Erdogan is urging banks to turn on the credit taps and pushing for lower interest rates for businesses and consumers to reignite the economy. The measures may lift economic growth to 0.25% this year, the International Monetary Fund said this week, reversing an earlier expectation for a 2.5% contraction. The government is taking steps to overhaul the banking industry by forcing lenders to reclassify $8 billion of loans as non-performing.

Read more from Bloomberg Intelligence on Turkey’s banking industry

Turkiye Is Bankasi AS, Turk Ekonomi Bankasi AS and Turkiye Vakiflar Bankasi TAO are all tapping the syndicated-loan market to refinance foreign-currency borrowings, following an earlier move by Akbank TAS. The banks are offering a 185 basis-point margin on the dollar tranches and 170 basis points on the euro portions, according to people with familiar with the deals. That compares with spreads of 200 basis points and 190 basis points in the second half of 2018.

Turkish Banks Get Some Relief as Foreign-Borrowing Costs Drop

While the pricing isn’t quite at the around 100 basis points the lenders were paying in 2017, the banks are catching a tailwind as central banks around the world lower rates and consider stimulus measures, spurring interest in riskier emerging-market assets.

Elsewhere, Denizbank AS is also raising a syndicated loan for the first time in six years, at the same rate as its Turkish peers, according to a spokesman at the Istanbul-based company. The lender has sold out of Russian ownership, freeing it up to access foreign financing. A spokesman for TEB confirmed the offering but declined to comment on the terms, while representatives for Vakifbank and Isbank didn’t respond to requests for comments.

The 13-member Borsa Istanbul Banks Sector Index has gained 32% this year after declining 31% in 2018.

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