The Turkish finance ministry has permitted private pension companies to allocate up to 30% of state-contribution funds to investments in asset-backed securities, but only those approved and graded by the Capital Markets Board of Turkey (SPK), according to an amendment to a regulation published on December 5 in the Official Gazette.
Turkey’s government has been providing a state contribution equal to 25% of each individual’s payments into the private pension system with the aim of encouraging participation.
The Turkish private pension system’s total funds amounted to TRY75bn ($14.1bn), including TRY11bn worth of state-contribution funds, as of November 23, according to the latest data from the Turkish Pension Monitoring Center.
Based on the latest figures, pension companies have to date been allowed to invest up to TRY3.3bn in asset-backed securities which have SPK approval, BloombergHT reported on December 5.
Meanwhile, the Turkish Development Bank (TKB) is holding book-building on December 5-7 to issue TRY3.15bn (€521mn) worth of asset-backed paper based on mortgage-backed securities to be issued by state-owned lenders Ziraat Bankasi, Halkbank and Vakifbank and private lender Garanti Bankasi.
“The demand [for the TKB paper] currently seems good,” Erhan Topac, head of the Capital Markets Association (TSPB), told daily Sabah on December 5.
The 5-year paper will provide an annual yield of 18.17%, according to the newspaper.
The collateral structure of the paper based on a total TRY80bn worth of 632,000 mortgage loans established by the four local lenders in question is very strong, Tevfik Eraslan, general manager of Is Portfoy, told Sabah.
State-owned lenders Ziraat, Halkbank and Vakifbank are providing a buyback guarantee for one year, Sebnem Turhan of daily Hurriyet reported on December 5, citing a presentation made on December 3 to potential qualified investors.
The issuance will be completed on December 7, Turhan also reported.
The latest amendment does not mean any obligation for pension funds, it simply allows them to invest in asset-backed securities based on their own assessments, BloombergHT stressed.
The government recently launched a so-called all-out-war against inflation pushing the private sector to “voluntarily” cut prices of items included in TUIK’s inflation basket by 10% for two months. Meanwhile, Ugur Gurses, a former central bank official, wrote on November 28 in a blog post that the government was encouraging local lenders to “voluntarily” cut interest rates.
Investments in asset-backed securities can be made only from state-contribution funds while the investment of individuals’ own payments in other tools presently allowed will be continued, BloombergHT also reported.
Benefiting from high yields
Unnamed senior sector representatives told BloombergHT that sector representatives had demanded that they be allowed to invest in asset-backed securities with the aim of benefiting from high yields, while they also expected to be allowed to allocate other funds to invest in asset-backed paper.
According to the former regulation, there was permission to invest 75% of state-contribution funds in the Turkish Treasury’s lease certificates. With the latest amendment on the asset-backed securities, the pension companies are now allowed to invest 70% of state-contribution funds in the certificates.
Also according to the latest amendment to the regulation, 15% of the state contribution provided to auto-enrolment system participants will be made in cash from the third year to the sixth year, 35% will be made in cash from the sixth year to the 10th year, and 60% will be made in cash after the 10th year.
Based on the former regulation, the government was only guaranteeing the payment of 25% of auto-enrolment system participants’ total payments at retirement.
A state contribution running at 25% applied to voluntary participation is made in cash.