Global Banks Rein in Turkey Loans as Erdogan Roils Markets

  • Risk aversion rises on lira slump, upheaval after coup attempt
  • Rollover ratio for syndicated loans tumbles to three-year low

Turkish Lira's Collapse Weighs on Central Bank

Global lenders are staying away from Turkish syndicated loans.

QuickTake Turkey’s Divide

The number of lenders participating in syndicated-loan offerings has dropped almost every time a Turkish bank has rolled over one of their facilities during the second half of this year, according to data compiled by Bloomberg. This has meant that the country’s banks are issuing foreign-financing packages at the slowest pace since January 2013, according to data compiled by Turkey’s central bank. 

Overseas lenders are scaling back after the government seized companies and fired workers allegedly connected to a plot to overthrow President Recep Tayyip Erdogan. Barclays Plc and Nomura Holdings Inc. recently declined to renew funding on a $1.1 billion syndicated loan of Turkiye Is Bankasi AS, a person with knowledge of the matter said.

“Foreign banks are reducing their lines to Turkey due to rising country risk, deteriorating macro balances and Fitch downgrade expectations," Cagdas Dogan, a banking analyst at BGC Partners Inc. in Istanbul, said by phone. “The decline in foreign-debt rollover ratios will not threaten the health of the banking sector, but will reduce its appetite to extend loans.”

The increased risk aversion is a particular challenge for Turkey’s banking industry because of its reliance on overseas borrowing for funding, and comes after downgrades that left Fitch Ratings Ltd. as the only major credit-rating company with Turkey at investment grade. A currency that has weakened 17 percent against the dollar this year is also squeezing Turkish banks, Tomasz Noetzel, a Bloomberg Intelligence analyst, said in a note.

Cheaper Loans

The rollover ratio for long-term loans, a measure of the rate at which banks renew their foreign financing, slumped to 81 percent in September from an average of 155 percent in the first half of the year, the central bank data show.

The slump in foreign interest comes amid pressure from Erdogan on banks to extend more loans at cheaper costs and with a loan-to-deposit ratio that stood at 124.5 percent at the end of the third quarter, compared with 123.4 percent at the end of 2015.

Abu Dhabi’s First Gulf Bank PJSC also decided not to participate in Isbank’s loan offering in September after forming part of a 42-strong lending group in 2015, the person familiar with the deal said. JPMorgan Chase & Co. also cut its share of the loan by 90 percent to $5 million from $50 million, the person said.

The number of banks that participated in Isbank’s latest syndicated loan issuance declined to 29, while at Turk Ekonomi Bankasi AS it dropped to 24 from 33 previously, according to data compiled by Bloomberg. At Yapi Kredi Bankasi AS, the lenders shrank to 33 from 38, and at Turkiye Garanti Bankasi AS to 34 from 39, according to the data.

“Isbank continues carrying out successful syndications,” the Istanbul-based bank said in an e-mailed statement. Nomura, JPMorgan, Barclays and FGB declined to comment.

While syndicated loans provide low returns, they are seen as a foot in the door for other business, such as international bond sales, BGC’s Dogan said. The decline in foreign banks participating in the group facilities may also be due to the fading prospects of doing business with Turkish lenders in future, he said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE