Let the Good Times Roll for Turkish Banks as Bond Curve Steepens

(Bloomberg) -- The lira isn’t the only Turkish asset that has decoupled from the turmoil plaguing markets.

The sovereign yield curve is just a stone’s throw away from righting a more than two-year long inversion. And for banks, it means there may be further upside.

Turkey is bucking a trend that has seen long-end rates across a large swath of the developed world nosedive. In contrast, short-term rates have fallen as Turkey kicks off what promises to be a pronounced easing cycle amid slowing inflation and the prospect of looser monetary policy in the developed world.

An upward-sloping yield curve will put an end to negative carry costs and make holding longer-dated assets, such as government bonds, a more lucrative proposition for local lenders. It may also lower the risk premium on longer-term loans, which boosts their appeal and, by extension, economic growth.

Banks have outperformed the broader market this quarter. But with a forward price-to-book value of around 0.5, they’re still trading at a more than 20% discount to their five-year average and at less than half the value of their emerging-market peers.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, ;Onur Ant at oant@bloomberg.net, Justin Carrigan

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