Turkish state-owned lender Ziraat Bankasi has mandated its headquarters to conduct the legal and operational processes to issue up to $2bn worth of FX or TRY-denominated asset-backed or mortgage-backed bonds, the lender said late on November 13 in a stock market filing.

Although Ziraat Bankasi said in its statement that the planned issues would be held at home or abroad, “Overseas” was ticked on the filing form.

Fitch Ratings on October 1 downgraded the bank to B+ with a negative outlook. On September 26, Moody’s Investor Services downgraded the long-term foreign currency deposit rating of Ziraat Bankasi to B2 with a negative outlook.

Turkish lenders paid an effective maximum interest of 10% for USD deposits with maturities of up to one month and up to three months in September, up from around 7% in August, according to the latest data obtained from the central bank. The effective maximum interest rate on USD deposits with maturities of up to one month was as low as 3.95% back in January 2017.

The Capital Markets Board of Turkey (SPK) said on November 13 that it had relaxed requirements for asset and mortgage-backed bond issues.

SPK approves bond limits
The SPK has approved state-owned Vakifbank’s mortgage-backed bond limit for issuances at home or abroad worth up to €3bn and private Yapi Kredi’s mortgage-backed bond issues abroad worth up to €1bn along with private Islamic lender Albaraka Turk’s lease certificate limit of up to TRY2bn via its subsidiary Bereket Varlik Kiralama, according to the latest SPK bulletin published on November 8.

Private lender Akbank has decided to issue up to $2bn worth of eurobonds, the lender said on November 6 in a bourse filing.

Islamic lender Kuveyt Turk’s subsidiary KT Kira Sertifikalari applied to the SPK to issue up to TRY7bn worth of lease certificates on the domestic market, KT Kira said on November 7 in a bourse filing.

The Turkish Development Bank applied to the SPK to set up a wealth financing fund, the lender said on November 8 in a bourse filing.

Rough Q3 for lenders
Ziraat Bankasi’s net profit declined by 22% y/y to TRY1.7bn in Q3, the lender said on November 12 in a bourse filing.

Vakifbank increased its unconsolidated net profit by 41% y/y to TRY985mn in Q3, the lender said on November 12 in a bourse filing. A Reuters poll expected Vakifbank’s quarterly profit to come in at TRY834mn.

Halkbank’s net profit fell by 61% y/y to TRY302.5mn in Q3, the lender said on November 9 in a bourse filing. It was the lowest quarterly profit registered since 2008, Fercan Yalinkilic of Bloomberg said on Twitter. A Reuters poll predicted Q3 profit of TRY413mn.

“[Ziraat Bankasi and Halkbank] led the loan growth [in Q3] yet also see the biggest the drop in profits,” Fercan Yalinkilic of Bloomberg said on November 13 on Twitter.

Private lender Isbank’s net profit fell by 17.5% y/y to TRY1.24bn in Q3, the lender said on November 8 in a bourse filing. It was the highest profit decline recorded in three years, according to Fercan Yalinkilic of Bloomberg.

Steep recession for debt-junkie economy
Turkey is currently in the midst of a severe credit crunch, pushing the debt-junkie economy into a steep recession. The government keeps insisting on palliative fiscal measures in the build up to the local polls to be held in March 2019. Recent steps imply the plan is to borrow abroad to relax domestic financing conditions. Analysts are wary of fiscal backsliding driven by electoral concerns.

“Rollover of medium- and long-term external debt in Turkey's financial system fell to 43% in Q3, down from 103% in Q2 and 88% in Q1. This was widely expected and ‘isn't news.’ In fact, it's just a lagging reflection of the credit crunch playing out since early August,” Robin Brooks of the Institute of International Finance (IIF) said on November 13 in a tweet, adding: “The credit crunch in Turkey has been unlike any other, in that the BoP sudden stop in August caused credit flow to turn negative, after a large positive credit impulse in 2017. We estimate the negative credit impulse to be around -3% of GDP, bigger than in 2008/9.”

“The [Turkish] economy risks a hard landing,” the EBRD said on November 13 in its latest transition report.

Recently, the Ministry of Treasury and Finance cancelled three scheduled auctions for November and it sharply cut its domestic bond offers at auctions. It cited reduced financing needs thanks to the government’s recent saving measures and €1bn worth of eurobond sales made on November 7.

Earlier this month, the Treasury devised a rescue plan that would allow construction and real estate companies to offload unsold stock to a state-backed fund.