Page 33 - TURKRptAug22

Garanti’s non-call could damage investor confidence in the Turkish banking sector, with investors no longer clear how banks will act at call dates. This could weaken banks’ ability to access Tier 2 debt markets and push up their financing costs, potentially leading more banks not to call their debt.
Several Turkish banks have Tier 2 call dates in H2 2022, including Odeabank, Vakifbank (VAKBN) and Fibabanka (see table below).
Each bank’s approach is likely to depend on how volatile the market conditions are at the time, and on its own view of the reputational risk associated with a non-call.
However, as well as saving Garanti the increased refinancing costs, the non-call will underpin the bank’s capital position by continuing to provide a hedge against lira depreciation (currently the greatest risk to Turkish banks’ capitalisation), and supporting its total capital ratio.
The non-call will also preserve Garanti’s foreign-currency (FC) liquidity buffer amid ongoing lira depreciation.
Lira weakness creates heightened FC liquidity risks for Turkish banks given their exposure to international investor sentiment and their high deposit dollarisation.
Garanti’s non-call does not affect the bank’s rating, which stands at B/Negative (five notches below investment grade and one notch below Turkey’s sovereign rating along with local peers).
However, it could deter investors if Garanti wants to issue Tier 2 debt in future, and it reflects the heightened operating environment pressures that already weigh on Turkish bank ratings.
The operating environment is a key rating sensitivity for Turkish banks. Key downside risks include potential funding market closure and deposit outflows amid heightened market volatility, which could lead to material erosion of capital and FC liquidity buffers given the sector’s large amount of FC debt that matures in the near term and high deposit dollarisation.
Risks to financial and macro stability remain high given lira weakness, Turkey’s unorthodox monetary policy in the face of soaring inflation, and lack of policy credibility amid tighter external financing conditions.
Turkish banking industry outstanding subordinated (Tier II) eurobonds
Issuer
ISIN
Coupon
Volume (mn)
Issuance
Maturity
Kuveyt Turk (sukuk/subordinated) (RECALLED)
XS1323608635
7.900%
$350
Feb 17, 2016
Feb 17, 2026 (/21)
Akbank (subordinated) RECALLED
XS1574750292
7.200%
$500
Mar 15, 2017
Mar 16, 2027(/22)
TSKB (subordinated)
XS1584113184
7.625%
$300
RECALLED
Mar 29, 2027(/22)
Garanti (subordinated)
XS1617531063
6.125%
$750
May 24, 2027(/22)
Odeabank (subordinated)
XS1655085485
7.625%
$300
Aug 1, 2027(/22)
Vakifbank (subordinated)
XS1551747733
8.000%
$228
Nov 1, 2027(/22)
Fibabanka (subordinated)
XS1386178237
7.75%
$300
Nov 24, 2027
Akbank (subordinated)
XS1772360803
6.797%
$400
Feb 27, 2018
Apr 27, 2028(/23)
Isbank (subordinated)
XS1623796072
7.000%
$500
Jun 29, 2028(/23)
33 TURKEY Country Report August 2022 www.intellinews.com