Turkish banks outdo Europe laggards

14/05/2009 | Sarah White

Garanti, Turkey’s third largest privately-owned bank, this week sealed the refinancing of a E600 million loan deal, at an overall price of Libor + 2.5%. The original loan, granted in May last year, carried an interest rate of Libor + 0.7%.

The deal underlined how Turkey’s largest financial institutions have been able to keep foreign funds flowing this year – in sharp contrast to banks in most of eastern and central Europe, who are struggling to refinance external borrowings.

Garanti’s deal followed Yapi Kredi’s success in securing $410 million worth of dollar and euro loans last month.

Other institutions, such as Akbank and Vakif, are also looking to refinance loans for last year, and are likely to succeed, according to analysts and bankers arranging the deals.

Their international funding prospects are in stark contrast to banks in Russia, for example, where even financial institutions that were previously popular among foreign lenders have failed to attract any financing this year – at any price.

The contained levels of leverage at Turkish banks, the diversity of their funding sources, and their ability to provide their regular lenders with trade finance business have contributed to their success in the international markets. They have been able to borrow at what Commerzbank emerging market analyst Luis Costa described as “extremely tight and outstanding rates”.

Garanti’s pricing of 2.5% over Libor was more than double what it would have paid two years ago – but a peer such as state-owned Ukreximbank, the first Ukrainian borrower to attempt to raise external funding since last year, is now contemplating interest rates closer to 8% over Libor.

The Croatian Bank for Reconstruction and Development (HBOR) is paying about 4% for a much smaller loan of E100 million.

David Pepper, head of structured loans for CEMEA at WestLB in London, said: “Look at what the top tier Turkish financial institutions are paying compared to what’s being paid by other emerging market bank borrowers, there is no comparison. It’s an anomaly within the market – always has been and probably always will be.

“Turkish banks have significant volumes of trade related and treasury business to push the way of the banks. This is important in an environment where the ability of a borrower to consistently deliver profitable ancillary business has become more crucial than ever before.”

Analysts have also cited the low level of non-performing loans within the Turkish banking system, compared to other eastern European countries, and the small foreign exchange exposure as more of its strengths.

Costa said: “If you take a look at the loan books for the entire banking system, in Turkey we’re talking about 30% to 35% of foreign exchange lending relative to the total books, which suggests they’re in a much better shape than their peers.”

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