Akbank’s three year loan will be the first standalone syndicated loan from a Turkish financial institution since 2007 with a maturity longer than one year. At an initial target size of just $250m, it is much smaller than the size of the two one year refinancings that Akbank routinely does each year ($1.2bn for March’s effort) and tiny in the context of the bank’s balance sheet.
Turkish peer banks similarly fund twice a year in large size. They might well be less enthusiastic in following Akbank in this experiment than they all were in mimicking its move this year to a 367 day loan from the more traditional 364 day format.
With 367 day loans the ruse was to get preferential capital treatment from the Turkish central bank, TCMB, for funding of longer than one year, while extending the maturity by just three days and paying only an extra 10bp for the privilege. In doing so, they suffered no loss of borrowing potential or demand in the banking book, with most lenders happy to pile into the novel tranche for its extra bump.
It also did nothing to disrupt the established biannual funding cycle.
But going to a genuine three year loan in such small size, with a diminished pool of willing lenders and paying a fair whack more, may not make as much immediate sense. Akbank’s top line all-in for the three year is 185bp over Libor — 150bp margin and 35bp fee each year — compared to just 70bp for the 364 day loan.
There’s no guarantee that its peers will even achieve as favourable rates or comparable demand among lenders. This, in a nutshell, is why Turkish financial loans have stuck with the one year tenor as the market standard for so many years.
But once again Akbank is ahead of the curve and its peers should sit up and take notice. The bank has made a prudent decision to reduce its reliance on one year funding, as by taking a three year loan it can term out some of the borrowing it would have needed in August.
Coming to market with loans twice a year has suited Turkish banks up until now, but for most of that time the country’s economy has been on the rise and the ruling political party has enjoyed unshakeable power. Neither of those conditions look as assured in the coming years, and now, twice a year, Turkish banks could find their budgets heavily at the mercy of domestic turmoil and prevailing market sentiment around the country.
By going now, Akbank is laying the groundwork for a more stable approach and has found the market receptive to the idea. There has been no pushback by banks on pricing, despite the political uncertainty around Turkey, since the country’s election on June 7 resulted in a hung parliament.
On the contrary, Akbank appears to be heading for an oversubscribed book and the chance to increase the size of the loan, however modest it may have been to begin with.
This should be seen by peer banks as the starting point of a new trend — one that will only gather momentum and become easier to join with every deal of its kind that follows. Not every Turkish bank will get the same terms as Akbank, but not every one of them can do that now for one year loans.
Coughing up extra basis points to borrow three year money could well prove worth the price if it prevents future headaches should the twice yearly funding cycle become overpressured. Those who follow first will be among the first to benefit as lenders become more comfortable with the format.
And they will also be among the first to reach new lenders in the Middle East and Asia, drawn in by the additional return. A key part of Akbank’s drive with the three year loan has been, after all, to diversify its lending pool in these regions.
Dipping a small toe in to test the water now will cost Turkish banks little in fees or face. But if enough of them show bravery it could do a lot to help the stability of the Turkish banking sector for years to come.