Garanti, Akbank Plan Covered Bonds to Tap European Cash

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Turkey’s Akbank and Garanti Bank are selling covered bonds to take advantage of abundant cash among investors as European Central Bank policies boost liquidity.

Akbank hired Barclays Bank Plc, HSBC Holdings Plc and Natixis SA to arrange the sale of five-year bonds, backed by mortgage loans, from a permitted allocation of as much as 1 billion euros ($1.08 billion), Hulya Kefeli, executive vice president in Akbank’s international division, said by e-mail. Unicredit SpA and Societe General SA were also picked as dealers, she said.

European Central Bank President Mario Draghi is seeking to breathe life into the region’s market for asset-backed debt, which contracted more than 40 percent since 2010, spurring demand for bonds as liquidity is increased among investors.

Garanti Bankasi, the country’s biggest lender in market value, is also planning a covered bond sale and got the approval of the capital markets regulator to sell as much as 1 billion euros, Batuhan Tufan, Garanti’s senior vice president and head of financial institutions, said by telephone on Monday.

“The market is technically supportive for the sale of Turkish mortgage covered bonds,” Tufan said. “Coupled with the ECB’s decision to inject liquidity to the market, and following a few years of negative supply in covered bond market, European investors are looking for assets to place excess cash.”

Turkey amended legislation last year to allow covered bond sellers to use lira-based assets to back euro-denominated bond sales and shield bond buyers from currency risk. The amendment prompted banks to consider selling covered bonds, Tufan said.

Akbank sold its first covered bond of about 150 million euros backed by residential mortgage loans to a single buyer, European Investment Bank, in December, Kefeli said, adding the lender is seeking to benefit from “a new investor base and cost advantage compared to senior secured issuances.”

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