Fresh boost to Turkey’s nascent covered bond market
Encouraging a new source of funding for Turkish banks, the European Bank for Reconstruction and Development (EBRD) has invested the Turkish lira equivalent of €75 million in a covered bond issued by Turkish lender Garanti Bank.
The Baa1-rated bond is backed by a portfolio of residential mortgages and bonds of this kind are rare in the country’s banking sector. The EBRD’s investment in the issuance aims to support Turkey’s nascent covered bond market.
Covered bonds, a popular funding tool in Europe, are backed by assets on the issuing banks’ balance sheets and are viewed as low-risk investments.
Turkey's covered bond law is now in line with the standards of the most advanced economies, allowing local banks to use this highly cost-efficient form of public funding.
Noel Edison, EBRD Director for Financial Institutions in Turkey, said: “We are pleased to play a role in yet another covered bond issuance in Turkey. This asset class, well established in Europe, is an excellent new funding tool for Turkish banks and, importantly, will broaden their investor base. We hope that more Turkish banks will follow suit as the asset class provides access to a wider range of long-term investors at lower funding costs, reduces reliance on short-term funding and thereby contributes to the management of balance-sheet asset liability.”
Gökhan Erün, Deputy CEO of Garanti Bank, commented: “We attach great importance to green mortgage loans for the financing of environmentally friendly projects for highly energy-efficient buildings. Last month, we signed the first ever residential-mortgage covered bond agreement with International Finance Corporation in Turkey to support green mortgages. Now, we have signed an agreement with the EBRD that will increase the number of environmentally friendly buildings to help develop sustainable cities. This covered bond issuance also strengthens the trust and stability established by Garanti Bank and Turkey in international financial circles.”
Garanti, listed on Borsa Istanbul, is the third-largest bank in Turkey by assets and the second-largest privately owned bank.
Proceeds from the EBRD’s investment will be on-lent to home owners, home associations or service providers investing in improvements aimed at cutting energy consumption and reducing household bills. This is part of the Bank’s Turkey Residential Energy Efficiency Financing Facility, which is supported by the Clean Technology Fund and the European Union.
The EBRD has a strong track record of providing finance to Turkish financial institutions for on-lending to small and medium-sized enterprises and for supporting other strategic priorities in the country. To date, the Bank has provided around €3.7 billion in the form of equity, loans and capital market instruments to 21 financial institutions in Turkey.
The EBRD is a leading investor in Turkey and to date, has invested over €9 billion in the country through more than 220 projects across many sectors. It has mobilised nearly €20 billion for these ventures from other sources of financing. Some 98 per cent of the Bank’s investments in Turkey are in the private sector.