The Turkish Treasury is planning to borrow a total of Turkish lira (TRY) 4.5bn (€762mn) from the domestic market in December versus a scheduled redemption of TRY2.8bn, it said on November 30 in its regular domestic borrowing strategy release.
However, in its previous domestic borrowing strategy release, released on October 31, the Treasury stated: “In December, domestic debt redemption is projected as TRY 2.8 billion, while domestic borrowing is projected as TRY 3.4 billion.”
According to the latest borrowing strategy, Turkey plans to hold two scheduled domestic auctions in December, one for 2-year benchmark fixed coupon paper (re-open) on December 11 and the other for 7-year floating coupon bonds (re-open) on December 18.
On November 9, the Treasury announced that it had cancelled a 10-year CPI-indexed domestic bond (re-open) auction previously scheduled for November 12 along with auctions for a 7-year floating coupon bond (re-open) and a 10-year fixed coupon benchmark bond (re-open) scheduled for November 13.
It cited reduced financing needs thanks to recent government saving measures and €1bn worth of eurobond sales made on November 7.
Later, the Treasury sharply cut its domestic bond offers at auctions held on November 12 and November 13. The yields consequently fell markedly below market rates.
Accepted all bids
Subsequently in the month, the Treasury accepted all bids, with a total worth of TRY3.24bn, at a domestic lease certificate auction held on November 20, the authority said in a statement. It previously said on November 19 that it planned to sell papers worth TRY2bn.
Consequently, it raised a total of TRY6.9bn from the domestic market in November. According to the previously announced domestic borrowing strategy, the authority was planning to borrow a total of TRY22.4bn from the domestic market in November versus a debt redemption of TRY21.8bn.
Turkish President Recep Tayyip Erdogan’s son-in-law and treasury and finance minister Berat Albayrak told a budget committee in parliament on November 22 that he did not really need to borrow lira through the end of the year but that did not mean that he would not.
The Treasury did not have additional lira borrowing needs for December but the situation might change if it was decided that an adjustment would result in the better use of public resources, Albayrak said, adding: “I do not need it until the year-end but I may [turn out to] need it. If I find a decent opportunity I will surely utilise it to lower interest costs and more effectively use public resources.”
Turkey is monitoring global best practices in the management of the Treasury and is planning “a very different auction methodology” in 2019, Albayrak also told lawmakers on the budget committee.
The Turkish Development Bank (TKB) is to issue TRY3.15bn (€5.3bn) worth of asset-backed papers based on mortgage-backed securities to be issued by state-owned lenders Ziraat Bankasi, Halkbank and Vakifbank and private lender Garanti Bankasi, according to a prospectus seen by BloombergHT on November 29.
Securitizing PPP infrastructure loans
The government is working on a plan to securitize up to a total of TRY400bn worth of loans provided to Public Private Partnership (PPP) infrastructure projects along with mortgages, Rahim Ak of Haberturk reported on November 27.
The government plans to sell securitized loans abroad through TKB, Ak also reported, adding that the total volume of PPP loans provided by local lenders amounted to $40bn (about TRY200bn) and mortgage loans amounted to more than TRY193bn.
Some $20bn worth of PPP loans are under the Treasury guarantee so around TRY100bn worth of loans could be sold abroad; however, foreign investors would prefer guarantees to be provided by such international lenders as Islamic Development Bank and the International Finance Corporation rather than the Turkish Treasury and the government plan is currently being developed in that direction, according to Haberturk.
State-owned Ziraat Bankasi has received approval from the Capital Markets Board (SPK) to issue TRY5.5bn worth of covered bonds to qualified investors, the SPK said on November 30 in its latest regular weekly bulletin.
Banking sector loans fall 8.3%
Turkey's banking sector loans fell by 8.3% to TRY 2.46 trillion as of November 23 from as high as TRY2.69tn as of August 10, the central bank’s regular weekly bulletin showed on November 29.
Weighted average interest rates (WAIR) on lira-denominated consumer loans (personal+vehicle+housing+real person overdraft account) fell from 32.26% as of November 16 to 32.07% as of November 23, according to the latest data from the central bank. The rate stood as high as 32.9% as of October 26, and was at 21.05% at the end of June and 20.22% at the end of March.
WAIR on commercial lira loans rose back from 26.44% as of November 16 to 29.87% as of November 23. The rate stood as high as 35.94% at end-September, and was recorded at 23.52% at end-June and 17.88% at end-March.
“Despite sluggish domestic demand, the deterioration in pricing behaviour and cost pressures stemming from the cumulative depreciation in the Turkish lira pose risks to price stability,” the central bank said also on November 30 in its latest financial stability report, adding: “Credit conditions for both corporate and retail loans became tighter due to geopolitical tensions, the financial sector’s stronger liquidity preferences, tighter global financial conditions, and exchange rate volatility; and together with decelerating investment and consumption demand, annual loan growth remained below historical averages.”
Total outflows from the foreign-held domestic government bonds stock amounted to $387mn in the year to date as of November 23, according to the latest data from the central bank.
The M3 broad money supply grew annually by 20.5% in October 2018, following the 28.8% y/y growth in September 2018, the central bank said on November 30 in its monetary developments report.
The annual rate in loans granted by the monetary sector to households slightly decelerated month by month and stood at 6.7% in October 2018. Meanwhile, the annual rate in loans extended to non-financial corporations decreased from 32.8% to 22%.
Total domestic borrowing seen at TRY132.4bn
The Treasury expects total domestic borrowing this year will amount to TRY132.4bn, down from the planned TRY134.3bn.
Turkey is planning to raise less cash through local-currency debt sales than it redeems for the first time since 2016, according to the Treasury’s 2019 borrowing strategy.
The country plans to borrow TRY153.9bn from the domestic market and redeem TRY164.6bn. That would take the debt rollover ratio to 93.5%, down from the expected 107% this year, and 126% in 2017.
The Treasury, meanwhile, plans to borrow $8bn on international markets in 2019.