Nicholas Birch in Istanbul -

Yapi Kredi Bank’s $1.2bn securitised loan issued on December 14 was a fitting end to a bumper year for Turkey’s structured finance sector, which has soared from just $200m five years ago to $5.8bn last year as banks seek ways to match maturities amid a boom in ever-longer consumer loans.

Arranged and underwritten on a joint lead basis by Standard Chartered Bank and UniCredit Markets & Investment Banking, the Yapi Kredi deal is the largest of its kind ever secured. Counter-intuitive though it may sound, however, experts also say it is just the latest evidence that Turkey’s securitisation market needs to branch out, and fast.

The quibble that they have has to do with the form that Yapi Kredi’s securitised loan took. In traditional structured finance deals, investors buy reduced-risk bonds based on a repackaging of existing consumer loans such as mortgages or car loans; in Yapi Kredi’s case, the collateral for its $1.2bn loan comes in the form of foreign currency receipts that haven’t reached the bank yet.

Future money

Known in the business as a future flow issue, it’s a type of securitisation that has dominated developing markets since they began dabbling in structured finance in the mid-1990s.

It's easy to understand why investors have preferred it: with hard currency receipts collected in a special purpose vehicle outside the country of origin, future flow securitisations are essentially offshore, mitigating political and economic risks back home, and offering issuers in sub-investment grade countries hope of an investment-grade rating.

Collateral for a loan?

Normally, developing markets move towards existing asset-backed securitisations – legally more complex but potentially much richer - as their economies stabilise and their legal systems become more sophisticated. That is what has happened in Russia, which last year issued consumer loan- and mortgage-backed securitisations alongside future flow ones. With a new mortgage law up its sleeve, Kazakhstan is now following suit.

Turkey, meanwhile, remains glued to future flows. And head of financial institutions at Yapi Kredi Bank, Pinar Salci, thinks it is high time that changed.

Only a limited number of resources are open to future flow securitisations, she points out, and Turkish banks have covered the ground thoroughly. Even taking into account that some issuances can be refinanced through amortisation, she says, "we’re getting to the stage where there is nothing left to securitise."

Emerging markets rating director for Standard and Poor’s, Gary Kochubka, compares Turkey’s securitisation sector to a butterfly "with a very, very long gestational period."

With $19bn issued since 1995, more than twice as much as former world leader Brazil, "Turkey is by far the largest future flow securitisations issuing country," he says. "There’s obviously a market there, the need is there, but at some stage you just have to take your fate in your hands and move forward."

With the news that Turkey’s government is submitting its long-awaited mortgage law to parliament this week, the signs are that the transformation Kochubka and Salci are hoping for may not be far off.

Real laws

First tabled in 2005, the draft law had been shelved for nearly two years, to the dismay of both banking and real estate sectors. The delay hasn’t really affected Turkey’s mortgage market, which has grown to $10bn on the back of falling interest rates. But the legal ambiguity caused by its absence has stifled hopes of a home-grown structured finance sector.

Law or no law, interest rates that have dropped little since hitting highs of 22% last May are likely to put mortgages out of the reach of all but a wealthy minority. And while Turkish bankers say their efforts to build securitisable mortgage portfolios are well advanced, they also say the road ahead is still long.

"It’s going to take time to regulate and develop the primary and secondary markets", says Akbank’s executive vice-president, Eyup Engin. Like most of his Turkish colleagues, Engin expects credit card or auto securitisations "to happen first given their shorter maturity span and higher rates."

The real problem is that Turkey’s local investor base is currently too shallow to absorb even limited issuances, making it almost certain that banks would have to look for financing to foreign investors only interested in hard currency bonds.

With assets in Turkish lira, that means swap costs, says Akbank’s Engin, and with them the risk that "the cost of funding by far exceeds the total return on these assets."

Convinced the added cost of setting a benchmark will be enough temporarily to put banks off, S&P’s Gary Kochubka expects Turkey’s first asset-backed securitisations to be issued in early 2008.

Turkish bankers are more optimistic. "Things will happen before the end of this year," reckons Tolga Egemen, vice-president of Garanti Bank. "Once elections [planned for November] are over, the banks will move into action."

"All the big banks are keen to get their feet wet," agrees a senior banker at Finansbank. "Plus there’s a certain kudos attached to being the first to issue a new sort of securitisation."

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