August 23, 2018 / 12:14 PM / 3 months ago

Turkish banks' secondary loan prices hit six-year low

LONDON, Aug 23 (LPC) - Turkish banks’ secondary loan prices have hit their lowest point since early 2012, further complicating their efforts to refinance billions of dollars of loans as the country’s financial crisis shows no signs of easing.

Average secondary bids for Turkish bank loans hit 97.94 on August 20, 114bp lower than 99.08 on August 1, according to LPC data. This is the lowest level since 97.89 in January 2012, after Turkish troops were killed on the Iraq border.

Turkey’s banks have to refinance US$6.4bn of the US$7bn of Turkish loans that are due to mature by the end of the year — a task made more difficult by Turkey’s sovereign downgrade last week.

Standard & Poor’s downgraded Turkey to B+ from BB- and Moody’s followed with a downgrade to Ba3 from Ba2, after downgrading 17 Turkish banks in June.

“The risk of continued financial stress is significant, with potentially further negative implications for Turkish banks and corporates that have large external funding needs,” Moody’s said.

Political volatility, a 37% drop in the value of the lira and Turkey’s deteriorating relations with the US have shaken the market and several Turkish bank loans that were in the market in August are now on hold.

Lenders are assessing the situation, but no further developments are expected until the end of the Eid holiday on August 25.

“We will have to wait to see when the market reopens after the holiday in Turkey,” a senior banker said.

A US$940m refinancing for Akbank is on hold along with loans for Turk Ekonomi Bankasi and Turk Eximbank. Garanti Bank and Yapi ve Kredi Bankasi were talking to banks about refinancing loans.

“Akbank is definitely on hold, the client itself suggested to wait till after Eid,” a second banker said.

MORE EXPENSIVE

Falling secondary prices suggest that Turkish banks will have to pay higher interest margins to access the loan market. This may not be sufficient to overcome lenders’ fears of increased risk and systemic problems in Turkey’s banking sector.

The biggest drop in secondary pricing was a 2.4% fall for a €498.5m loan for ING Bank AS, which was signed in the first refinancing round earlier this year, to 96.3 on August 20.

Loans signed between March and May for Garanti Bank, Isbank, Yapi Kredi, Ziraat Katilim Bankasi and Ihracat Kredi Bankasi are now quoted 1.4-1.8% lower at around 97, the data shows, although little trading is taking place.

“The market has seized up, it’s now showing quite wide offers, but I’m not sure how real they are and they have not been transacted,” the first banker said.

Turkey’s Finance Minister Berat Albayrak held a conference call last Thursday in a bid to reassure investors, which was followed by a statement from the finance ministry last Friday.

The statement said that the finance ministry would continue to seek foreign financing in international markets, and from foreign direct investments to underpin the economy. Qatar pledged to invest up to US$15bn in Turkey last week.

Turkey’s five-year credit default swaps were at 473.6 on Thursday, down from 487.5bp on August 17 and a high of 574.5bp on August 13.

SETTLE FOR LESS?

Although many Turkish banks are part-owned by international banks, lenders’ support for their bank loans is not guaranteed as fears about the country’s economy mount.

Akbank had already increased pricing by 30bp to 150bp-160bp on its US$940m loan, which is on hold and has not had further price revisions as yet.

“There are deals out there in the market. Nothing has changed on those deals since launch, other than the currency situation,” a third banker said.

Bankers say that Turkish banks could have to settle for smaller deals if some lenders choose not to roll over their commitments, or even repay the loans.

“Turkish banks may have to be more realistic, there may not be enough appetite to take the deals that are out there,” a fourth banker said.

S&P said it expected a recession next year while Moody’s said a weakening of Turkey’s public institutions had made policymaking less predictable. (Editing by Tessa Walsh)

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