Turkey is just the latest economy to give market participants palpitations. The trade fight with the US and subsequent sanctions has led to sell-offs in bond, equity and currency markets, while the ego war between each country’s strongman president is pouring fuel on the fire one tweet at a time.
Rating agencies have been uncharacteristically quick to act, with Moody’s and S&P slapping one notch downgrades on the Turkish sovereign to Ba3 and B+, respectively.
But if you look closely, there is a small oasis of calm amid the hullabaloo. The syndicated loan market is ticking away. Loans officials working on deals for Akbank, Türk Ekonomi Bankası and Türk Eximbank said this week that they were still progressing with the loans as normal. This is not unusual. Banks were among the first back for Russia’s unsanctioned names after bond markets vanished under US and EU prohibitions over the invasion of Crimea in 2014.
Loans are a key part of the Turkish banking system’s funding cycle, with the top tier banks each raising more than $2bn-equivalent annually. Akbank has only printed one $400m subordinated bond so far this year.
The importance of loan market liquidity during a panic cannot be understated. The undisturbed flow of money from lenders to out of favour credits provides crucial liquidity at a time when other markets are closed, and gives issuers a foot up to eventually print new bonds, as they have provable access to hard currency, when investors have stopped doing their headless chicken act.