Turkey Gives Banks $3.7 Billion Lending Boost to Spur Growth

(Bloomberg) -- Turkey’s sovereign wealth fund bolstered the capital ratios of five state-owned banks by 3.3 billion euros ($3.7 billion) in a bid to keep credit flowing in the recession-hit economy.

A market stability fund within the government-controlled investor bought debt issued by the lenders under a recapitalization program announced Monday, which will see a further 400 million euros flow to Islamic banks. President Recep Tayyip Erdogan’s administration is seeking to rekindle growth with cheap loans, while tasking the firms with salvaging industries and helping consumers in the hopes that private firms will follow.

“The plan isn’t creating fresh cash for the state banks,” Ates Buldur, a banking analyst at Credit Suisse Group AG’s Istanbul unit, said in an email. “It’s turning one liability in the state banks’ balance sheets to another liability so that their capital adequacy ratios will increase, enabling them to have more lending power without an erosion in their capital buffers.”

Capital ratios have fallen as the country’s lenders have undertaken nearly $28 billions in debt-restructuring requests. They’re also facing a growing pile of bad loans in the wake of the currency’s plunge last year, which has spurred inflation and increased funding costs. The government last year recapitalized three of its banks by selling bonds to its unemployment fund.

State-owned lenders rushed to extend loans before municipal elections at the end of March as their commercial and international peers pulled back. That helped increase their market share by 3 percentage points to 43 percent between August and the end of February, according to data compiled by Bloomberg.

“This trend is not sustainable,” Buldur said. “The pace of state banks’ loan growth is likely to slow down.”

Who Got What

  • TC Ziraat Bankasi AS, the country’s biggest lender, received the most, selling 1.4 billion euros of bonds.
  • Turkiye Halk Bankasi AS signed an agreement with the fund for a five-year loan of 900 million euros, the first interest payment of which will be made at maturity. That will improve Halkbank’s Tier 1 ratio by 210 basis points, which is “more than sufficient” to keep it above minimum thresholds, Buldur of Credit Suisse said.
  • The fund invested in Turkiye Vakiflar Bankasi TAO’s issuance of 700 million euros of five-year subordinated bonds. Vakifbank bonds have 5.076 percent coupon rate, although the Treasury earlier said they would have a zero-coupon.
  • Development bank Turkiye Kalkinma ve Yatirim Bankasi AS, which is being restructured, and Turkiye Ihracat Kredi Bankasi AS, also known as Eximbank, signed agreements for five-year subordinated loans of 150 million euros each.

Under the plan, the Treasury issues special-purpose government bonds to the stability fund, which then sells the notes to state lenders in exchange for subordinated debt. Islamic lenders Ziraat Katilim, Vakif Katilim and Emlak Katilim will also get funding.

The 13-member Borsa Istanbul Banks Sector Index fell as much as 1.7 percent, with Vakifbank declining 2.8 percent and Halkbank dropping 1.5 percent.

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