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Turkey to issue €3.7 billion debt instrument to consolidate state banks’ capital

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Turkey’s Treasury said on Monday it would issue 5-year debt instruments worth a total of 3.7 billion euros to strengthen the capital of state banks and state Islamic lenders, Reuters reported.

The government debt securities will be issued to the Market Stability and Balance Fund (PIDF), it said, adding that the fund will sell the securities to state lenders and buy back bank bonds and provide loans to strengthen their capital.

Meanwhile, Turkish state-owned lenders Ziraat Bank and Vakıfbank completed pricing of perpetual bonds worth a total 2.1 billion euros ($2.36 billion), the banks said late on Friday, using a tool to strengthen capital.

State lender Ziraat Bank, Turkey’s largest bank by asset size, has priced its Additional Tier 1 (AT1) notes worth 1.4 billion euros, the bank said in a stock exchange filing.

Earlier this month Turkey pledged 28 billion lira to boost the capital level of state banks and relieve bad debts in a sector left reeling by last year’s crisis, as the country moved to revive an economy plagued by double digit inflation and recession.

After last year’s currency crisis — in which the lira shed around 30 percent of its value against the US dollar — Turkey’s state banks began actively providing loan restructurings to companies and spreading low-interest credit to individuals as part of a broader government effort to stem the damage.

Vakıfbank said pricing of its AT1 notes with a nominal value of 700 million euros was finalized on April 18.

Economists have raised concern over a spike in the Turkish banking sector’s non-performing loan ratio. Finance Minister Berat Albayrak said last week the ratio stands around 4.2 percent and described it as “quite good.”

Last week, Halkbank said it plans to issue debt instruments or borrow in the Turkish market and abroad to meet its Additional Tier 1 (AT1) capital requirements.

Turkey’s Kalkınma Bank and Eximbank authorized headquarters to secure loans to support capitals last week.

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