EBRD invests in Turkey’s first euro covered bond

By Olga Rosca
@olgarosca

EBRD invests in Turkey’s first euro covered bond

Türkçe çeviri

VakifBank €500 million issuance signals birth of Turkish covered bond market

In a move to encourage a new source of funding for Turkish banks, the European Bank for Reconstruction and Development (EBRD) is investing €50 million in a €500 million covered bond benchmark issuance by Turkish lender VakifBank. The bond is backed by a portfolio of residential mortgages and is the first of its kind in Turkey.

The pioneering issuance met strong investor demand and signals the beginning of a covered bond market in the country.

Covered bonds, a popular funding tool in the European Union, are backed by assets on the issuing banks’ balance sheets and are viewed as low-risk investments.  

Turkey's covered bond law, which has been in the works for several years, is now in line with the standards applied in the most advanced economies, allowing local banks to use this highly cost-efficient form of public funding for the first time and paving the way for increased investor confidence. 

Noel Edison, Director for Financial Institutions at the EBRD, said: “This well established asset class in Europe is an excellent new funding tool for Turkish banks and will importantly broaden their investor base. We are pleased to play a role in VakifBank’s debut issuance. We hope that the Turkish banks will embrace the covered bond market as it gives access to a larger pool of longer-term investors with lower funding costs, reducing reliance on deposits and short-term wholesale funding and helping to address the asset-liability mismatch.”

VakifBank’s CEO Halil Aydogan added: “We are grateful to be issuing the first ever euro-denominated mortgage covered bond in Turkey. This transaction also proves the strength, credibility and recognition of the Turkish banking sector and VakifBank in the international markets.”

VakifBank, listed on Borsa Istanbul, is a full-service commercial and retail bank in Turkey with a wide regional network.

Part of the EBRD’s investment will be on-lent to women-led businesses under the flagship “Finance and Advice for Women in Business” programme funded by the European Union, the EBRD and the Republic of Turkey.

The rest of the EBRD funds will support agricultural small and medium-sized enterprises (SMEs) across Turkey, especially in the regions where finance for SMEs remains scarce.

The EBRD has a strong track record of providing finance to Turkish financial institutions for on-lending to SMEs and supporting other strategic priorities in the country. To date, the Bank has provided over €3 billion in the form of equity, loans and capital market instruments to 19 financial institutions in Turkey.

The Bank started investing in Turkey in 2009 and currently operates from offices in Istanbul, Ankara and Gaziantep.

To date, it has invested over €7 billion in the country through more than 180 projects in infrastructure, energy, agribusiness, industry and finance. It has also mobilised about €17 billion for these ventures from other sources of financing.

In 2015, Turkey was the top destination for EBRD financing, with €1.9 billion invested that year alone.