BNY Mellon: Emergence of covered bond in Turkey

Brian Hoey, MENA Corporate Trust Sales and Relationship Manager at BNY Mellon was a panellist on the ‘Covered bonds: Evaluating success stories and assessing the pipeline for further deals’ at the Bonds, Loans & Sukuk conference in Istanbul on Thursday 12 November.

Commenting on the emergence of the covered bond in Turkey, Hoey says: “Traditionally, the funding base of Turkish banks has been heavily reliant on customer deposits. These typically come with a maturity of less than three months, a legacy of past periods of high inflation. However this dependence on short-term funding sources has severely constrained the ability of banks to provide clients with longer-term financing to help boost economic growth in areas such as infrastructure and project finance.

“While we have seen other forms of asset-backed transactions in Turkey, the new mortgage-backed covered bond structure can help change this and will hopefully pave the way for other such transactions to be issued by Turkish banks. These new structures will also aid the development of a new market regionally and should help ensure sustainable growth of Turkey’s housing market. Banks could also use the proceeds of the investment in mortgaged-backed covered bonds to increase the availability and tenor of funding available to small and medium-sized businesses in Turkey.”

“Mortgage-backed covered bonds have further widened the funding options for Turkish banks and an increasing number of issuers see these covered bonds as the new funding tool for the region, primarily because of the flexibility and longer-term funding they offer,” adds Hoey.

“So far this year we have already seen a number of banks taking their first steps towards creating covered bond programmes. Turkey’s banking sector has enjoyed a period of innovative mechanisms for funding, with the increased use of medium-term notes and loan syndications.”