Turkey: Participation banks lead from the front
Turkey’s participation banks – the local term for Islamic banks – are not immune to the funding pressures facing bigger institutions in the country, although they are having considerably greater success than their conventional cousins. There are four such banks, three of which have strong Gulf parents, from which most funding has traditionally been raised. Turkiye Finans has 64% of its shares held by National Commercial Bank of Saudi Arabia. Al Baraka Bank is owned by the Bahraini group of the same name. And Kuveyt Turk is majority owned by the Kuwait Finance House. Only Bank Asya is locally owned.
Bank Asya followed the trend of the conventional banks when it managed to secure a new one-year murabaha syndication in March this year for $171 million and €94.5 million. This took out a loan from the previous April for $121.5 million and €99.2 million. Indeed the deal this year had four leads: Standard Chartered, ABC Islamic Bank, Noor Islamic Bank and National Bank of Dubai. National Bank of Dubai was part of the 26-strong bank group last year, though in a more junior role.
Since March, however, Bank Asya has been seeking to diversify its funding base through the issue of sukuks. These have taken longer to materialize despite the market opening up in August last year when the inaugural deal from Kuveyt Turk – a $100 million issue led by Liquidity Management House and Citi – broke new ground.
However, on October 27, Kuveyt did sell an upsized $350 million, five-year deal led by HSBC, Standard Chartered and Liquidity Management House. Crucially it priced at 447.5bp over mid swaps, inside the cost of funds of Turkey’s largest bank Eurobond issuers such as Garanti and Akbank.
Bank Asya is also in the market, with a sukuk being led by Citi and UBS. At the time of going to press it is meeting international investors. Also in the market is Al Baraka, which has been authorized by its board to issue a rent certificate that would essentially be structured the same as Kuveyt Turk’s sukuk.
These sukuks should in theory be less dependent on the buyers’ own cost of funds as they are targeted at bond buyers. But in reality, it tends to be the same banks that provide the syndications as invest in the sukuks, mainly Middle Eastern and the occasional Malaysian or other Asian institutions. Despite their own cost of funds increasing rapidly over the past six months, there is a general shortage of paper that they can buy. Turkish banks, with their low ratings and yield above the buyer’s cost of funds, fit the bill perfectly. Sources suggest that the conventional banks will seek to mimic the success of their Islamic cousins and look to tap the market. If it is good enough for Goldman Sachs, it is good enough for Garanti.