August 16, 2018 / 1:12 PM / a month ago

CORRECTED-Crisis threatens Turkish banks' loan refinancing efforts

(Corrects amount of Akbank’s loan to US$940m from US$1.150bn in para 3)

By Tessa Walsh

LONDON, Aug 16 (LPC) - Turkey’s deepening financial crisis is threatening efforts by its banks to refinance existing syndicated loans as financial institutions look likely to bear the brunt of the plunging lira and political turmoil.

The crisis, which seen the lira lose nearly 40% of its value against the dollar this year, escalated shortly after Turkey’s banks embarked on their second biannual loan refinancing round in early August.

Akbank is currently trying to refinance a US$940m loan and Turk Ekonomi Bankasi and Turk Eximbank are also in the market as other banks wait to tap the market.

Around US$7bn of Turkish loans are due to mature between now and the end of the year, according to LPC data.

These deals are now on hold as international banks assess systemic risk for Turkey’s banking sector while soaring credit default swap rates make the loans look underpriced.

“This current round of deals certainly can’t get done at the terms they launched at. Smart money is on suspending the syndication process for the time being,” a senior banker said.

The short term one and two-year loans are generally not underwritten. Turkish banks will either have to reduce the size of the deals or repay them if lenders are unwilling to roll over their commitments, several bankers said.

“The immediate priority is to refinance what is outstanding, if they can’t refinance it, they have to repay it. Do they have the liquidity to meet those payments?” the senior banker said.

Turkish bank loans are classified as pre-export trade deals to avoid stamp duty, and a fall in demand as the Turkish economy has slowed could help its banks to live with smaller loans, bankers said.

Turkish banks are liquid with a good asset-liability match, which bankers say gives no immediate concern, particularly as many of the country’s top banks are part-owned by foreign banks.

“I think they (Turkish banks) have got the capital to ride it through and repay loans when they fall due, either from their own reserves or their clients’ foreign exchange,” a second senior banker said.

Bankers say that there is currently no co-ordinated process to address Turkey’s capital markets financing needs, as banks continue to address the issue on an individual basis.

Turkish banks have sufficient liquidity to withstand an 18 month absence from the capital markets, a third senior banker said, although some disagreed with this.

“There is zero probability that Turkish banks could get through 18 months and I don’t see how sustainable repayment is,” a market participant said.

PENS DOWN

International banks are unlikely to make any decisions before ratings agencies react, but are also looking for some economic stability after a tumultuous time, even by Turkey’s volatile standards.

“It’s pens down on those deals while we wait for what the ratings agencies say. I don’t expect a major change in sentiment, which is at best bleak,” the first senior banker said.

Of the US$7bn of Turkish loans that will mature before the end of the year, US$6.4bn are bank loans. This rises to US$11bn in 2019, of which US$9.05bn are bank loans. Maturing loan volume falls to US$2bn in 2020 and US$400m in 2021, the data shows.

Although Akbank’s current loan was priced 30bp higher at around 150bp-160bp than its last deal in March, this is already out of line with loan yields to maturity which are currently around 300bp, up from 200bp a month ago, a fourth senior banker said.

Turkey’s five-year credit default swaps were at 479bp on Thursday, down from a peak of 574.5bp on Monday.

Garanti Bank and Yapi ve Kredi Bankasi are also talking to banks about refinancing loans, and other banks including Isbank and VakifBank are due to refinance, as lenders query appetite for two-year loans.

Turkish Finance Minister Berat Albayrak, President Erdogan’s son-in-law, hosted a call on Thursday which aimed to reassure global investors that policy makers can contain the country’s worst currency crisis since 2001.

“The conference call will hopefully give some guidance and markets some degree of direction,” the third senior banker said. (Editing by Christopher Mangham)

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