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Tuesday, 17 October 2017

Turkey 2006

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The combination of stable government and an improving economy continues to keep Turkey on the right path. But as the country definitively emerges from the dynamics of crisis economics and with elections in the offing, what comes next?

At the political and economic level, conditions remain benign. The recent spat over the choice of a new head for the central bank may have caused a few headlines, but the government remains generally sure-footed in its approach to political and economic policy.

In the banking sector, the most recent headlines have only served to demonstrate the exciting prospects for deal making. News in early April that National Bank of Greece was going to acquire a stake in Finansbank is only further proof of the upcoming consolidation in the Turkish banking sector, with foreign acquirers looking to establish themselves in this growing market.

In the capital markets, Turkish ECM activity saw some successes in 2005, with government sales particularly prominent. Given sellers' sensitivity to price and the continued volatility in the market, the question now is whether the upward trend sufficient to maintain that ECM business.

In the bond market, the sovereign has ridden the wave of emerging market euphoria as ratings upgrades and buyback programmes continue to underpin the asset class. But against competition from the loan market and new structured products, the prospects for non-sovereign Eurobond issuance remain slight.

By contrast, the well-established Turkish syndicated loan market has matured considerably over the past year. The bank market has stretched tenors out to three years, while in the corporate market the country's privatisation programme yielded a series of jumbo loans. With Turkish borrowers still offering good relative value, pricing is likely to contract further, feeding lenders' appetite for higher yielding corporate supply.

In the local bond market, yield-hungry emerging market investors have been aggressively committing money as tightening Eurobond spreads triggered a switch towards domestic bonds. But the big story in 2006 looks likely to be one of structured instruments – such as securitisation or covered bonds – finding a ready audience among Turkey's expanding domestic funds. The big local banks are already gearing up for the development of a TL-denominated ABS market, while investment banks and monoline insurers see exciting prospects for growth in the new market segments.

This special report also looks at the international Turkish lira bond market, which grew well beyond bankers' expectations last year, then declined as the currency rallied. This year has started solidly, and there is a new source of support for the market as bankers expect strong re-investment flows back into the currency.

Finally, there is a profile of TSKB, an institution that has a long history as a development bank and is now keen to promote the expansion of the country's capital markets.

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