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 [euro] in a 500 million [euro] 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 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."
Meanwhile, 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...