2018

1Q 2018

1Q2018

4Q 2018

Developments in Turkish Banking Sector

Turkish Banks continued to successfully roll-over their syndications in 4Q18. Total foreign funding equivalent to US$ 5.1 billion was secured in the quarter.

Akbank announced a rights issue to raise TL3bn on December 5^th, 2018. The Bank shared its plans to increase its paid-in capital from TRY4bn to TRY5.2bn where new shares was sold for TRY2.5/share bringing the total capital injection to TRY3bn. The Bank's parent, Sabanci Holding (40.8% stake), fully subscribed and guaranteed to buy unused rights.

CBRT Actions During the Quarter

• In the fourth quarter, the CBRT continued to maintain its tight stance on monetary policy. The policy interest has been kept at 24% in the two Monetary Policy Committee meetings held this quarter.
• On October 31^st, CBRT announced that Turkish Lira currency swap market had been opened at the Central Bank and the transactions would be conducted via quotation method with banks authorized in the Foreign Exchange and Banknotes Market within their pre-determined limits.
• CBRT kept “interest rate cap” and “overdue interest rate” on credit card transactions for 1Q19 unchanged. Accordingly, maximum contractual interest rate stands at 2.25% for TL and 1.80% for FX. Monthly maximum overdue interest rate stands at 2.75% for TL and 2.30% for FX.

Rating Actions During the Quarter

On October 1^st, following the sovereign rating downgrade in September 2018, Fitch has downgraded 20 Turkish Banks and their subsidiaries’ long-term FC credit ratings and viability ratings. Outlook maintained at Negative.

Regulatory Developments During the Quarter

• The Financial Restructuring Framework Agreement (Framework Agreement) was approved by BRSA on 19 September 2018. The Framework Agreement was signed by 28 banks as of December 24, 2018. According to the agreement, if creditors covering two thirds of a syndicated loan, agree to sign a contract with the debtor within the scope of Framework Agreement, then all of the creditors are obliged to restructure the entire loan if needed.
• The BRSA rules of (i) converting FX credit risk exposures with maximum of June 30, 2018 FX rate or 252 day average of CBRT FX bid rates and (ii) MtM losses not being included in CET1 capital when calculating the capital adequacy rates, has been abolished as of December 27, 2018.
• On November 27, BRSA published an amendment to the regulation on bank cards and credit cards; the installment upper limit for expenditures of airways, travelling agencies and accommodation has been increased to 9 months from 6 months. The maturity of the loans granted for mobile phone purchases is capped with six months. However, maturity for mobile phones up to 3.500 Turkish Liras will be applied as 12 months until 31 January 2019.

NPL Sales During the Quarter

• Garanti BBVA sold its TL 337 million NPL portfolio receivables for TL 17,5 million.
• Akbank sold its TL 446 million NPL portfolio receivables for TL 19,4 million.
• Halkbank sold its TL 76 million NPL portfolio receivables for TL 4,5 million.

Other Developments

192,500,000,000 Class A shares in Türk Telekom owned by Ojer Telekomünikasyon A.Ş. (OTAŞ), representing 55% of Türk Telekom's issued share capital, which were pledged as security for the existing loan facilities of OTAŞ, have been officially taken over by an SPV (special purpose vehicle) owned by the senior secured creditors to OTAŞ.

3Q 2018

DEVELOPMENTS IN TURKISH BANKING SECTOR

Turkish Banks continued to successfully rolled-over their syndications in 3Q18, US$ 1.7 billion* equivalent amount was secured as syndicated loans in the quarter. Syndication roll-overs of  Eximbank, Isbank and TEB were also successfully completed in October.
Vakıf, Halk and Eximbank announced their TL sub-debt issuances in September:

• Vakifbank issued a TL5bn fixed-rate Tier-I subordinated debt with an early redemption option after 5 years.
• Halkbank announced that the Bank issued a TL2.98bn fixed-rate subordinated debt with a 10-year maturity. Note that, this is third TL subdebt issuance of the bank. The first one was issued in 4Q17 (TL3bn) and the second one was issued in July 2018 (TL5bn).
• Eximbank announced that the bank has issued a TL3bn fixed-rate subordinated debt with a 10-year maturity and an early redemption option after 5 years.

Isbank and Halkbank decided to initiate a share buyback program for their maximum 130 million and 70 million shares, respectively . Accordingly, as of quarter-end, Isbank has bought back 79.6 million shares.

CBRT actions during the quarter

• In the third quarter, CBRT further tightened the monetary policy by 625 bps in order to support price stability. Following the move, as of the end of September, policy rate, which is determined as one week repo rate reached 24%.
• On August 6th, CBRT reduced the upper limit for the FX maintenance facility from 45% to 40% within the ROM, providing approximately USD2.2bn liquidity in the system. Tranches have been determined as follows:
• 
  

  Net FX Fatility Tranches %	Reserve Option Coefficients
  0-20	1
  20-25	1.4
  25-30	1.7
  30-35	2.1
  35-40	2.5

• On August 13th, CBRT reduced TL reserve requirement ratios (RRR) by 250bps for all maturity brackets. RRRs for non-core FX liabilities were also reduced by 400 bps, while the maximum average maintenance facility for FX liabilities has been raised to 8 percent. In addition to USD, EUR can be used for maintenance against TL reserves under the reserve option mechanism (ROM). With this revision, approximately TL10bn, USD6bn and a USD3bn equivalent of gold liquidity was provided to the financial system.
• CBRT raised the collateral FX deposit limits for TL transactions of the banks from EUR7.2bn to EUR20bn. In addition, CBRT decreased the minimum amount of Turkish government bonds from 30% to 10% as the deposit limits for TL transactions of the banks.
• To be effective from August 29th, the banks’ borrowing limits for overnight transactions at the Interbank Money Market established within the CBRT would be twice the limits applicable before August 13th, 2018.
• On August 13th, CBRT announced that banks will be able to borrow FX deposits in one-month maturity in addition to one-week maturity. In addition, banks’ FX deposit limits of around USD 50 billion may be increased and utilization conditions may be improved if deemed necessary.
• CBRT increased the “interest rate cap” and “overdue interest rate” on credit card transactions for 4Q18; TL rates came to 2.25% and 2.75% from 2.02% and 2.52% per month, respectively; and FX rates came to 1.80% and 2.30% from 1.62% and 2.12% per month, respectively.
• CBRT raised Turkish banks’ remuneration rate of the TL required reserves to 13% from 7%.

Rating actions during the quarter

• Moody's has revised down the credit ratings of 18 Turkish banks, following the Agency’s decision to place Turkey's ratings from Ba2 to Ba3 on August 17, 2018.
• Fitch has revised the credit ratings of 20 Turkish banks, following the Agency’s decision to revise down Turkey’s ratings from “BB+” to “BB“ on July 13, 2018.
• S&P has revised the credit ratings of 6 Turkish banks, following the Agency’s decision to revise down Turkey's ratings from “B+” to “BB-“ on August 17, 2018.
• JCR maintained Turkey’s credit ratings at investment grade, while revising down the rating outlook from “Stable” to “Negative” on August 14, 2018. Accordingly, the Agency has revised the credit rating outlook of 9 Turkish banks.

Regulatory developments during the quarter

• According to a decision published in the Official Gazette on 31 August 2018, tax on the TL deposit income has reduced while tax on the FX deposit income has increased for all maturity brackets. The regulation will be valid for the next three months.
• As of August 14th , BRSA temporarily allowed banks to convert FX credit risk exposures with maximum of  following two; (i) June 30, 2018 FX rate and (ii) 252 day average of CBRT FX  bid rates. Also, as from August 14th, MtM losses will not be included in CET1 capital.
• BRSA limited Turkish banks’ wrong way swaps, options, spot and forward transactions with foreign counterparties by not allowing a level exceeding 25% of the bank’s regulatory capital. While calculating the ratio of 25%, the 75% of the total transaction amount with a maturity from 90 to 360 days and 50% of the total transaction amount with a maturity of 360 days and more shall be considered.
• The Banks Association of Turkey (TBB) announced that Turkish companies with a total outstanding debt more than TL100mn will be eligible for restructuring.  In order to benefit from the restructuring, no legal proceedings should have been started against them by creditors.  30% of the total number of the creditors and 75% of the total receivables is sufficient for the restructuring decision.
• Communique regarding conversion of FX based contracts to TL has gone into effect. The regulation cannot be applied to non-residents, the offices, representative offices and entities with 50% foreign ownership as well as entities located in free trade zones. Accordingly, companies cannot have FX contracts unless they (1) have agreements in relation to securities regulated by the Capital Markets Board (2) have agreements covering sale, purchase and leasing of movable properties, excluding cars and construction equipment (3) have independent constructor agreement regarding the construction, maintenance and repair of vessels (4) have agreements regarding the sale of software developed abroad as well as license and service agreements regarding hardware and software (5) have agreements executed by public institutions and agreements executed by the subsidiaries of the Turkish Armed Forces Foundation.
• According to a decision published in the Official Gazette on 4 September 2018, Turkish resident exporters are obliged to bring proceeds into Turkey and minimum 80% of the proceeds must be converted in TL at a Turkish bank. The regulation will be valid for the next six months.
• BRSA published a regulation on loan assessments. Lenders can extend maturities, refinance loans and extend new loans. Moreover, the minimum migration period of Stage 2 loans to Stage 1 is reduced from 1-year to 3-months.
• BRSA restricted consumer loan installment periods. Consumer loans are not permitted to exceed 36 months, whereas such limit is 48 months for auto loans and loans secured with autos and six months for loans granted for purchases of cell phones, tablets and computers.

NPL sales during the quarter:

• YKB sold its TL 367 million NPL portfolio receivables for TL 19 million.
• Fibabank sold its TL 306 million NPL portfolio receivables.

* Public Disclosure Platform. Calculation based on publicly-traded banks.

2Q 2018

DEVELOPMENTS IN TURKISH BANKING SECTOR

Turkish Banks raised a total amount of US$ 7.3 billion* equivalent international funding in 2Q18. US$ 6.3 billion equivalent amount was secured as syndicated loans, US$ 0.5 billion equivalent amount from securitizations, US$ 85 million from covered bond issuance, US$ 0.2 billion equivalent amount from multilateral development banks and US$ 0.2 billion equivalent issuances** under Global Medium Term Notes (GMTN) Programs.

YKB announced its capital strengthening plan and increased its issued share capital by TL 4,100,000,000 to TL 8,447,051,284. Shareholders were able to participate in the capital increase in the proportion of their participation held in the Bank.  CMB’s approval and the necessary procedures have been completed on 29 June 2018.

CBRT actions during the quarter

• In the second quarter, CBRT further tightened the monetary policy by a total of 500 bps in order to support price stability. In April, May and June, CBRT increased rates by 75 bps, 300 bps and 125 bps, respectively. Following these moves, as of the end of June, policy rate, which is determined as one week repo rate reached 17.75%. 

• In May, CBRT completed the simplification process regarding the monetary policy. Effective as of June 1^st, one-week repo rate is the policy rate, while overnight borrowing and lending rates are 150 bps below/above the one-week repo rate. 

• In May, CBRT reduced the upper limit for the FX maintenance facility from 55% to 45% within the reserve option mechanism (ROM), providing approximately USD2.2bn liquidity in the system. 

• In May, CBRT raised the daily auction amount of FX deposits against TL deposits from USD1.25bn to USD1.5bn. Since these deposits are handed back after a week, the maximum total outstanding deposit amount in the auctions, could reach from USD6.25bn to USD7.5bn. 

• CBRT has also raised the non-deliverable forward (NDF) FX auction amounts for the one-month maturities from USD150mn to USD300mn and set the maximum total amount of forward FX sale position for 2018 as USD10bn. 

• CBRT allowed that repayments of rediscount credits for export and foreign exchange earning services, which are due by July 31, to be made in TL at a fixed rate. These transactions will be fulfilled at USD/TL rate of 4.20, EUR/TL rate of 4.90 and GBP/TL rate of 5.60. 

• CBRT increased the “interest rate cap” and “overdue interest rate” on credit card transactions for 3Q18; TL rates came to 2.02% and 2.52% from 1.84% and 2.34% per month, respectively; and FX rates came to 1.62% and 2.12% from 1.47% and 1.97% per month, respectively. 

Rating actions during the quarter

• Moody's has revised the credit ratings of 17 Turkish banks, following the Agency’s decision to place Turkey's ratings on review for downgrade on June 1, 2018.
• Fitch has placed the credit ratings of 25 Turkish banks on Rating Watch Negative (RWN) on June 1, 2018.
• S&P has revised the credit ratings of 5 Turkish banks, following the Agency’s decision to revise down Turkey's ratings from “BB” to “BB-“ on May 1, 2018.

Regulatory developments during the quarter

• BRSA has published amendment to banks’ credit procedures regulation. Accordingly, general purpose loans obtained to pay back debt to state entities are allowed to have higher than 48 months maturity. 

NPL sales during the quarter:

• YKB sold its TL 1,015 million NPL portfolio receivables for TL 59 million.
• Denizbank sold its TL 286 million NPL portfolio receivables.
• Fibabank sold its TL 72 million NPL portfolio receivables for TL 2 million.

* Public Disclosure Platform. Calculation based on publicly-traded banks.

** Bloomberg

1Q 2018

Turkish Banks raised a total amount of US$ 5.5 billion* equivalent international funding in 1Q18. US$ 1.2 billion equivalent amount was secured as syndicated loans, US$ 1.1 billion equivalent amount from securitizations, US$ 555 million from covered bond issuance, US$ 1.8 billion from Eurobond issuances and US$ 224 million equivalent issuances** under Global Medium Term Notes (GMTN) Programs.

CBRT actions during the quarter

• In 1Q18, CBRT kept its interest rates unchanged. Accordingly, as of 1Q-end, Late Liquidity Window, overnight lending, one-week repo and borrowing rates were at 12.75%, 9.25%, 8.0% and 7.25%, respectively.
• CBRT left the “interest rate cap” and “overdue interest rate” on credit card transactions unchanged for 2Q18; TL rates at 1.84% and 2.34%, respectively; and FX rates at 1.47% and 1.97% per month, respectively.

Rating actions during the quarter

• Moody's has revised the credit ratings of 17 Turkish banks, following the downgrade of Turkey's sovereign rating by one notch to Ba2 on March 7, 2018.
• Fitch has affirmed Halkbank’s Support Rating at ‘3' and Short-Term Foreign-Currency IDR at ‘B'. Other credit ratings have been placed on Rating Watch Negative (RWN).

Regulatory developments during the quarter

• In order to curb risks associated with FX-denominated corporate debt, new FC borrowing regulation will be effective as of May 2^nd, 2018. Accordingly, companies will not be allowed to borrow in FX unless they (1) are state or financial entities, (2) have a greater than US$15mn existing FX debt, (3) will use the FX debt to purchase machinery for projects under investment incentives, (4) will use the FX debt for defense related projects, (5) will use the FX debt for Public and Private Partnerships (PPP), (6) provide proof of future FX-receivables, and (7) will lease certain machinery. In addition, companies with FX revenues but have less than US$15mn existing FX debt will be allowed to borrow only as much as their last three years’ total FX revenues. For the companies that are capable to borrowing more than US$15mn; there will potentially be some hedging requirements. Existing FX and FX-indexed loans will not be rolled-over after this date, unless they meet the criteria.

NPL sales during the quarter:

• Akbank sold its TL 774 million NPL portfolio receivables for TL 36 million.
• YKB sold its TL 503.4 million NPL portfolio receivables for TL 26.5 million.

Other developments:

• Emirates NBD had started initial strategic discussions with Sberbank about a possible purchase of Sberbank’s stake in Denizbank.

* Public Disclosure Platform. Calculation based on publicly-traded banks.

** Bloomberg