Turkey to sell asset-backed securities to improve banks' liquidity

Shoppers wait outside a currency exchange in the Grand Bazaar in Istanbul. Cheap dollar borrowing over the past decade has led to a slump in the lira. Bloomberg

Turkey’s development bank is gearing up to sell asset-backed securities to investors, a sign that authorities are pressing ahead with a plan to help free up bank balance sheets and improve lenders’ access to liquidity.

A fund managed by development bank Turkiye Kalkinma Bankasi will sell 3.15 billion liras ($609 million) of five-year asset-backed securities on December 7, according to a document seen by Bloomberg. Those securities will be based on mortgage-backed loans to be issued by state lenders Turkiye Halk Bankasi, Turkiye Ziraat Bankasi, Turkiye Vakiflar Bankasi and private-sector bank Turkiye Garanti Bankasi.

The move comes as lenders in Turkey deal with an increasing number of problem loans, as companies struggle to service their debts due to a slump in the lira after binging on cheap dollar borrowing over the past decade. Bloomberg reported the details of the plan Wednesday.

The proposal would help state banks remove some mortgage loans from their balance sheets, creating room for new lending, people familiar with the matter said earlier. Bank shares rose slightly in Thursday trading, though some analysts were skeptical that the plan will do enough to support the sector.

“Such structures will only be slightly positive in terms of liquidity," said Cagdas Dogan, a banking analyst with BGC Partners in Istanbul. “Unless some funding is secured from abroad, these would only mean shifts in the domestic financial system and won’t be helping much."

The securitisation will see the state banks each sell a nominal 1 billion liras of mortgage-backed securities, while Garanti Bank will sell 150 million liras.

At least one of the state lenders involved in the plan would like to be able to post the instruments sold by Kalkinma Bankasi as collateral in money-market operations at the central bank, one of the people said.

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That proposal drew criticism from Ugur Gurses, an independent economy columnist and former central bank official. It would be a “high-speed” elevator to inflation and yet more devaluation of the lira, he wrote in a blog post.

The Turkish central bank is “not studying any such” mechanism, it said by email on Wednesday. The treasury and finance ministry didn’t respond to requests for comment.

Turkish lenders have "enough liquidity and enough collateral," and obtaining liquidity from the central bank by issuing asset-backed securities hasn’t been discussed, the Banks Association of Turkey, or TBB, said in a statement Thursday.

The securities issued by Kalkinma Bankasi would have zero risk-weighting on banks’ balance sheets for the first year should the plan be approved, according to the memo. The regulator wasn’t available for comment on the memo or the proposal.

The Banking Regulation and Supervision Agency, known as BDDK, told Turkey's two main banking associations that it considered the proposal to be beneficial, according to a note from the regulator seen by Bloomberg.

Kalkinma Bankasi was restructured earlier this year and its mandate was expanded, so that it could set up a fund to provide long-term financing for the economy. The development bank got approval to sell as much as 3.25 billion liras of asset-backed securities to qualified investors on November 23.