Banks 

Turkey 
Special Report 
Turkish Banks: Tapping the Bond
Markets 
Access to Longer­Term Funding is Positive for the Banks 

Analysts  Summary: Bond Issuance Positive for Turkish Banks 

Janine Dow Fitch Ratings views increasing bond issuance as credit positive for Turkish banks as
+33 1 44 29 91 38
janine.dow@fitchratings.com
this will help them to address current balance sheet maturity mismatches.
Refinancing risk arising from such issuance should be moderate as local banking
Gulcin Orgun regulation and banks’ own funding strategies should limit issuance volumes.
+90 212 2847 829
gulcin.orgun@fitchratings.com Fitch does not at present expect to take any rating actions as a result of Turkish
Levent Topcu banks’ increasing bond issuance, but greater access to long‐term funding will help to
+90 212 284 7819 underpin ratings at current levels. Nevertheless, the strong performance of the
levent.topcu@fitchratings.com
Turkish economy, where Fitch expects GDP growth to reach 7% in 2010, coupled with
Turda Ozmen the sound fundamentals of the banking system, may, over time, lead to rating
+90 212 284 7882 upgrades in an improving operating environment.
turda.ozmen@fitchratings.com
Maturity Mismatches Need to be Addressed
Fitch views Turkish banks’ strong deposit franchises as an important credit strength:
deposits accounted for 72% of liabilities at H110 and the sector’s loans/deposit
ratio was a moderate 84%. However, the maturity mismatch between loans and
deposits is large and has increased sharply in recent years, driven mainly by rapid
growth of retail housing and consumer loans. At end‐H110, 60% of loans, but only 3%
of deposits, had initial maturities of more than one year (see Table 1).
Fitch believes it is this structural maturity mismatch that is driving banks to seek
longer‐term sources of funding. In the agency’s view, the mismatch does not give
rise to heightened liquidity risks, because of the stickiness of retail deposits and
banks’ large holdings of liquid assets. However, the mismatch is a source of
significant interest rate risk, which bond issuance could help to address. Fitch
welcomes recent guidelines by the Banking Regulation and Supervisory Agency
(BRSA), which should stimulate issuance in TRY, limiting FX risks for banks.
Table 1: Contractual Maturity
Breakdown of Loans and
Regulatory Change is an Important Catalyst for Issuance
Deposits in Turkish Banking At the outset of 2010, the Capital Markets Board (CMB) simplified requirements for
System at End‐June 2010 bond issuance in Turkey, and in October 2010 the BRSA published principles relating
specifically to Turkish banks’ bond issuance in TRY. In Fitch’s view, these regulatory
Total Total
Deposit deposits Loan loans developments, combined with the strong emergence of the Turkish banks from the
Maturity (%) Maturity (%) crisis, have acted as a catalyst for recent bond issuance. Although the new
Demand 15.5 Up to 12.3 regulations do not cover eurobond placements, regulatory acceptance of banks’
7 days need to raise long‐term funding has also supported moves to issue internationally.
Up to 30.3 7 days‐ 5.9
1 month 1 month
1–3 46.7 1‐3 6.8
But Regulation Should Also Prevent Excessive Debt Growth
months months According to the BRSA guidelines, banks need to meet specific ratios if they are to
3–6 3.6 issue TRY bonds, and issuance limits will be established on a bank‐by‐bank basis.
months The BRSA estimates that potential TRY‐denominated bond issuance by Turkish
6–12 1.3 3‐12 15.3
months months commercial banks, based on an aggregate of possible individual bank limits, would
Over 2.6 Over 1 59.7 only be around TRY51bn, equivalent to half of commercial banks’ total equity.
1 year year
Total 100.0 Total 100.0 The BRSA, while recognising banks’ need to raise long‐term funding, is keen to
Total 564.5 455.1 preserve the deposit‐funded nature of the country’s banking system and limit
(TRYbn)
refinancing risk. Fitch expects that banks themselves will refrain from excessive
Source: BRSA 
eurobond issuance in order to contain FX risks.

www.fitchratings.com  5 November 2010 


Table 2: Characteristics of
the Turkish Banking Sector
June
(%) 2010
Total equity (TRYbn) 119.2
Total assets (TRYbn) 908.6
Loans/assets 50.10
Impaired loans/total loans 4.41
Loans/deposits 83.66
Equity/assets 13.12
Total regulatory capital ratio 19.21
Net income/equity 20.30
(annualised)
Source: BRSA
· Fitch Ratings raised the
Turkish sovereign’s LT FC
IDR to ‘BB+’ from ‘BB−’ in
December 2009
· Improving economic
conditions in Turkey,
certain banks achieving
investment grade ratings
and international
investors’ increased
appetite for higher‐
yielding paper have
combined to open the
doors for Turkish bank
bond issuance
· Fitch views this positively
as it points to greater
confidence in Turkey’s
banking sector and should,
over time, enable banks to
correct structural balance
sheet mismatches and
lend longer‐term
Turkish Banks: Tapping the Bond Markets
November 2010  2
Banks
Background 
Turkey’s commercial banks have, until recently, been infrequent issuers in the
capital markets. Mainly funded by large and stable retail deposits, and with highly
liquid balance sheets, with a large proportion of assets invested in local government
securities, they felt little need to issue debt securities. They struggled to find
sources of medium‐ and long‐term (MLT) funding, as is the case for banks operating
in many developing markets, and this was provided mainly in foreign currency (FX),
in the form of bilateral facilities, securitisations and loans from international
financial institutions (IFIs).
Keen to preserve high margins, pricing was also an issue as, unlike banks in some
more lowly‐rated countries, Turkey’s banks balked at the spreads that they might
have been asked to pay for accessing the international bond markets. Further, the
domestic capital markets tended to be crowded out by frequent issues of Turkish
government debt.
Ratings also played a part, as Turkey’s sovereign ratings remained stubbornly low
for many years and even the country’s financial institutions, traditionally among
the most highly rated entities in any economy, had low ratings, constrained by a
non‐investment‐grade Country Ceiling (see below).
This is now changing, and Fitch expects to see a growing number of Turkish banks
tapping the international bond markets for MLT funds. Fitch raised the Turkish
Country Ceiling to ‘BBB−’ from ‘BB’ in December 2009, and 10 Turkish banks currently
have Foreign‐Currency (FC) Long‐Term (LT) Issuer Default Ratings (IDRs) at this level.
Of these, five achieved this rating based on their intrinsic financial strength, devoid
of any support considerations. In July and October 2010, Akbank (Local Currency (LC)
LT IDR ‘BBB−’/Stable; Individual Rating ‘C’) and Yapi ve Kredi Bankasi (LC LT IDR
‘BBB’/Stable; Individual Rating ‘C/D’) issued five‐year senior bonds in the
international markets (see Table 6), and Fitch is aware that other leading banks in
Turkey are expected to follow suit during Q410 and 2011.
There are reasons for Turkey’s banks to begin to feel more optimistic about their
ability to secure MLT sources of funds from the international markets. Since the
2001 financial crisis, much has been done to restructure and strengthen Turkey’s
banking system. The economic outlook for Turkey is encouraging and international
investors appear increasingly comfortable with Turkish risk. The Turkish sovereign’s
two‐notch rating upgrade to ‘BB+’ from ‘BB−’ at end‐2009 is also good news.
Leading Turkish banks have long borrowed more cheaply than prices suggested by
their ratings, but the global low interest rate climate is driving international
investors to search for yield and returns offered by securities issued by Turkish
banks are now considered more attractive. 
Well­Managed Banking System 
One of Turkey’s strengths is its well‐managed banking system, characterised by low
leverage, adequate capital ratios, mainly retail deposit funding and high
profitability. Fitch considers IT and risk management systems, particularly at the
leading banks, to be of good quality, fundamental if managements are to react
quickly to Turkey’s often volatile operating environment. The agency also has a
positive opinion of reforms imposed on the financial sector following the banking
crisis of 2001 and of oversight conducted by the BRSA. Structural balance sheet
mismatches, inherent to many banking systems, are one of the weaknesses of the
system, and the ability to access longer‐term funding may in time pave the way for
an easing on this front. Not only does bond issuance underline growing confidence
in the banks, but going forward it should also enable them to expand longer‐term
lending, notably in the project finance and retail housing loan sectors, reduce
interest rate mismatches and lessen the structural maturity mismatch characteristic
of their balance sheets.
 

· The banking system is
largely deposit funded;
contractual maturities of
deposits are inevitably
short‐term, but they are
highly “sticky“ and the
BRSA estimates that a high
90% of TRY‐denominated
deposits are core
· Fitch understands that
local regulators view
capital markets
developments positively,
providing opportunities for
funding diversification for
banks and a chance to
deepen the local capital
markets
Turkish Banks: Tapping the Bond Markets
November 2010  3
Banks
Funding Structure of the Turkish Banking System 
Turkey’s banking system is largely retail deposit funded, with customer deposits’
share in total non‐equity funding equal
to 72% at end‐June 2010 and a
Funding Structure Turkish Banking
loans/deposit ratio of around 84% at
end‐June 2010. Large individual and System H110
commercial deposits, defined as those Subtitle
Subordinated Debt 1%
with a value in excess of TRY1m Securitisations 2% Other 6%
(EUR525,000), represented 47.6% of Syndicated Loans 2%
total deposits in the system at H110 Repros
Central Bank 7%
but, by number of depositors, only 3%.
In contrast, almost the totality (99%) of Bank Borrowings
10%
individuals’ savings deposit accounts fall
under the Saving Deposit Insurance
Deposits
Fund’s deposit guarantee TRY50,000
72%
(EUR26,000) threshold, reflecting a well
Source: BRSA
diversified savings deposit base.
While a high proportion of deposits are contractually short‐term, they are “sticky”;
the BRSA’s discussions with banks and a review of statistical information provided
to the regulators suggest that around 90% of TRY‐denominated retail deposits in
Turkey can be viewed as “core”. Thus, from a behavioural point of view, deposits
are often regarded as long‐term by the banks.
Turkish banks’ funding through borrowed funds equalled 22% of their non‐equity
liabilities at H110. Of this, borrowings from international markets in the form of
syndicated loans, mainly used to finance international trade finance, equalled 2% of
non‐equity liabilities at end‐June 2010, future‐flow securitisations, usually with
around seven‐year initial maturities, equalled 2%, other borrowings from banks and
IFIs equalled 10%, while funding from the Central Bank, interbank funding and
funding raised through repos equalled another 7%. Some banks have issued long‐
term subordinated debt, but this too is insignificant in terms of the system as a
whole (equivalent to just 0.8% of total non‐equity liabilities), and domestic debt
securities have only been issued by a few non‐deposit‐taking development and
investment banks, at just TRY164m, or 0.02% of system‐wide non‐equity liabilities
at H110.
The country’s leading commercial banks have been tapping the international
syndicated loans markets for many years, but such loans have, for the most part,
been fairly short‐term (maturities averaging one to three years). Renewals proved
easy, but short contractual maturities did little to ease structural balance sheet
maturity mismatches and allow for longer‐term strategic planning. Future flow
securitisations backed by diversified payment rights provided some relief, but
appetite for structured deals has waned since the onset of the recent global
financial crisis. 
Local Regulators are Supportive of Turkish Banks’ Efforts 
to Diversify Funding Sources and Access the Capital 
Markets 
Fitch has held meetings with both the BRSA and the CMB regarding the opening‐up
of the capital markets to Turkish banks. Fitch’s understanding is that regulators
view these developments positively. Not only do they offer banks an opportunity to
diversify sources of funding, but also such issuance may deepen the domestic bond
markets, provided that appropriate regulation is in place, particularly for domestic
bond issuance. A full range of instruments can be issued in the domestic capital
markets (senior, subordinated and hybrid debt, fixed and floating rate, but only
TRY‐denominated), but all public issues must be approved by the CMB prior to
issuance; when a financial institution is considering issuing bonds, the CMB requests
 

· Early in 2010, the CMB
took steps to simplify
procedures for bond
issuance in Turkey, and
the BRSA published
guidelines related to
financial institutions’ TRY
issuance in October 2010
· BRSA guidelines for bank
TRY issuance tie in banks’
ability to issue with
financial strength ratios
· Limits on TRY issuance to
be applied to all
commercial banks
· Even if the full amount of
permitted TRY bond
issuance is achieved,
Turkey’s banking system
will remain primarily
deposit funded
Turkish Banks: Tapping the Bond Markets
November 2010  4
Banks
the BRSA’s opinion. Withholding tax differentials on public‐ and private‐sector bond
issuance were eliminated in 2006, although capital gains tax is still far lower for
public‐sector bonds.
At the outset of 2010, the CMB tightened up requirements for bond issuance in
Turkey, simplifying documentation requirements (the format relating to offering
prospectuses is now more in line with EU standards) and introducing greater
flexibility. Furthermore, in November 2009, the CMB introduced regulation enabling
local commercial banks to issue bank bills (in addition to other short‐term
securities, namely commercial paper) in the domestic market; previously, this had
been the exclusive privilege of non‐deposit‐taking banks, such as the development
or investment banks. It is likely that the banks will help to deepen the domestic
capital markets and act as the benchmark for corporate issuers, and the BRSA’s
guidelines for banks are a step in this direction.
The BRSA’s approval is required if Turkish banks wish to issue TRY‐denominated
bills and bonds in the domestic capital markets. For FX issuance which is
permissible only in the international markets, formal approval is not required, but
banks naturally inform the regulators of their intentions. Fitch understands that a
request for a domestic TRY‐denominated short‐term bond was turned down by the
BRSA in Q110. Although the underlying rationale was not made public, the agency
believes that one overriding concern was that small investors should be fully aware
that they could be exposed to risk since bonds issued by banks are not covered by
the deposit guarantee scheme.
In addition, Fitch believes that regulators would like to assess the impact that
private‐sector TRY bond issuance (and within this segment, by banks in particular,
as these tend to be frequent capital markets issuers globally) might have on the
Turkish government’s ability to fund itself in the domestic markets; to date, Turkish
sovereign bonds have faced little competition from private‐sector securities and
fear of crowding‐out has not been a concern. Furthermore, bonds tend to have
bullet repayments, and this could expose banks to sudden liquidity stresses. There
is also some concern that Turkish banks might face reputation risk if some of them
were unable to meet their issuance targets or if prices in the secondary markets
proved excessively volatile. More importantly, some market participants believe the
stability of the overall deposit base in the banking system could be threatened if
corporate and even large retail depositors opted to switch out of deposits and into
bank bonds.
BRSA Guidelines
On 10 October 2010, the BRSA published a set of principles and procedures relating
to Turkish banks’ bond issuance in TRY. According to these guidelines, banks
wishing to issue bonds through either public offerings or private placements in
Turkey will have to comply with certain specific ratios, mainly regarding their
financial strength. They must report a minimum total regulatory capital adequacy
ratio of 12%. Documentation relating to public offerings must include clear wording
explaining that the securities offered for sale are not covered by the insurance
protection available for savings deposits. Prior to each issuance, the banks must
submit detailed financial reports to the BRSA, outlining what impact the bond issue
is expected to have on the bank, including an analysis of expected costs and
benefits, risk analysis under stress conditions and their plans to measure, monitor
and control such risks. There should be no record of breach of corporate
governance principles prior to issuance and, in the event that any such breaches
have occurred, these must be addressed prior to the issue.
Commercial banks will face limits regarding the amount of TRY debt securities
(short‐ and long‐term) that they can issue, and TRY debt instruments outstanding
(excluding subordinated debt, hybrid issues and asset‐backed securities) must not
exceed the amount of a bank’s equity. Limits, which will vary on a bank‐by‐bank
 

· The share of medium‐term
lending in Turkey is
growing as banks increase
their retail housing loan
and consumer loan books
Turkish Banks: Tapping the Bond Markets
November 2010  5
Banks
case, will be established taking into account capital adequacy ratios, the size of the
savings deposit base and market share. Thus, those banks displaying higher capital
adequacy ratios (in excess of 12%) will be able to issue greater amounts of debt, as
will those banks whose funding structure includes a large proportion of savings
deposits. Large banks, as measured by their share of assets in the total banking
system, will face stricter limits for debt issuance.
Fitch understands that the BRSA is keen to preserve the mainly deposit‐funded
structure of the Turkish banking system and ensure that only the financially sound
banks, which demonstrate an ability to measure, monitor and control the potential
risks associated with TRY bond issuance, are able to issue bonds and the total
amount that any bank can issue in TRY must never exceed its equity. The BRSA’s
estimates, based on its application of its established limits, are that the potential
for TRY‐denominated bond issuance by Turkish commercial banks is around half of
the equity of the commercial banking system at end‐June 2010 (ie, potential TRY
bond issuance of around TRY51bn). Were this to be achieved, the overall funding
structure of the country’s banking system would not change significantly, with the
share of deposits falling, as a percentage of total non‐equity funding, to 65% (from
72% at H110).
In Fitch’s view, the new BRSA bond issuance guidelines provide a transparent set of
formulae, which should prove helpful for those Turkish banks wishing to consider
TRY bond issuance as part of their funding strategies. In October 2010, Turkiye
Garanti Bankasi (LC LT IDR ‘BBB−’/Stable; Individual Rating ‘C’) announced that its
board had approved potential maximum TRY issuance up to TRY3bn in the form of
short‐term bank bills or bonds. 
The Loan Maturity Structure in Turkey is Lengthening 
The maturity profile of loans in Turkey is far longer than deposits and Fitch believes
it is this structural maturity mismatch that is driving the banks to seek longer‐term
sources of funding.
Medium‐term lending is not new to Turkey, but the share of longer‐term lending
extended by Turkey’s banks has been increasing quite considerably since end‐2002,
as illustrated in Table 3 below.
Table 3: Maturity Profile of Loans in Turkish Banking System (Original
Contractual Maturities)
End‐June 2010 End‐June 2005 End‐2002
ST loans/total loans (%) 40.3 55.7 53.3
MLT loans/total loans (%) 59.7 44.3 46.7
Total loans (%) 100 100 100
Total loans (TRYbn) 455.1 125.4 47.8
Source: BRSA, ST means loans with initial maturity of less than one year, MLT with initial maturity of more than one year
Further analysis reveals that the composition of medium‐term loans has altered,
with a steep increase in retail housing loans, as illustrated in Table 4 below. This
reflects a number of factors, such as higher per capita income, the growing
affluence of urban consumers in Turkey, fairly stable real estate prices in major
cities, with little evidence of “bubble” characteristics, lower interest rates, some
tightening of legal contractual terms surrounding mortgage loan facilities, short‐
term by international standards because such loans are extended at fixed rates and
borrowers have little appetite for longer‐term risk as the overall belief is that
interest rates in Turkey will, over time, continue their downward trend); the
average maturity for other consumer loans is around two‐and‐a‐half years.
Commercial banks have also started to compete more aggressively for project
finance loans (maturities in excess of five years), previously the almost exclusive
domain of the country’s development banks, which have access to long‐term
funding from supranational institutions and IFIs.
 
 Banks

Table 4: Breakdown of Medium‐ and Long‐Term Loans in Turkish Banking

System
(%) End‐June 2010 End‐June 2005 End‐2002
Corporate/SME working capital loans 29.8 34.2 33.6
Retail housing loans 19.5 11.7 2.2
Consumer loans 18.3 16.0 1.3
Corporate/SME investment loans 8.9 7.7 9.9
(includes project finance)
Specialised loans 5.5 4.0 2.7
Other MT loans (includes trade finance loans) 18.6 26.4 50.2
Total MT loans 100.0 100.0 100.0
Total MT loans (TRYbn) 271.6 55.6 22.3
Source: BRSA 

· Although deposits tend to Managing Interest and Exchange Rate Risk 

be stable and Loans extended and securities held by Turkish banks tend to reprice less quickly
behaviourally long‐term, than deposits and borrowings, thus they are exposed to rising interest rates. Details
the short‐term maturity concerning maturity and repricing mismatches are contained in Table 5 below.
profile of deposits still
creates an interest rate Medium‐term senior bonds raised by the banks to date have been issued
mismatch as deposits internationally and at fixed rates (see Table 6 below). Much personal lending in
reprice much more Turkey, including retail housing loans, is extended at fixed rates, and thus fixed‐
frequently than the rate bonds provide a good match for this type of lending. Since MLT bonds have to
majority of the loans date been issued only in FX and used to fund TRY‐denominated loans, currency risk
was hedged. Turkish banks have long made use of such hedging instruments and the
TRY‐EUR/USD markets are fairly well developed; certain banks are able to secure
currency hedges extending for up to three years. Project finance loans, on the
other hand, tend to be extended at floating rates, but Turkish banks have long
hedged themselves against interest rate movements through swaps, often with long
maturities. Protecting against interest and exchange rate movements represents an
added cost to the Turkish banks, and Fitch is advised that it is not so much relative
funding cost advantages that are driving bond issuance in the banking sector;
rather, it is the overall desire to extend the maturity of funding sources and to be
able to compete effectively in the MLT loan market. Details regarding maturity and
repricing mismatches are contained in Table 5 below. 

Accessing the Bond Markets is viewed Positively by Fitch 
For Turkish commercial banks, Fitch views access to the capital markets as a
desirable option but not a necessity. A bank’s ability to diversify sources of funding
is always viewed positively by the agency, but the funding profile of Turkey’s banks
is enviable, with a large proportion of retail funding, considered to be highly
desirable given the continued pressures faced by banks globally to fund themselves

Table 5: Turkish Banksa Interest‐Bearing Assets and Liabilities Maturity b and Repricing Breakdown H110
Loans Bank placements Securities Deposits Borrowings
Time to Time to Time to Time to Time to
remaining Time to remaining Time to remaining Time to remaining Time to remaining Time to
Breakdown in % maturity repricing maturity repricing maturity repricing maturity repricing maturity repricing
c
Less than 1 month 21.6 31.7 79.0 67.4 2.5 20.8 81.5 66.9 41.4 48.4
1–3 months 9.3 11.5 3.4 9.4 8.3 26.3 16.0 16.0 14.3 25.1
3–12 months 23.9 22.9 0.5 7.0 19.3 24.8 2.4 2.4 16.5 15.1
1–5 years 34.7 26.4 11.6 2.2 55.1 17.3 0.1 0.1 18.7 5.7
Over 5 years 10.1 7.4 5.5 0 14.8 9.2 0.1 0.1 9.0 2.7
Undistributed d 0.4 0.1 0 14.0 0.1 1.6 0 14.5 0 3.0
Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total (TRYbn) 442 43 294 539 163
a
Excludes the country’s “participation” (interest‐free) banks; b Remaining, not original contractual, maturity; c Includes ‘overnight’ and ‘demand’ in “Time to maturity”
columns; d Includes no interest portion in “Time to repricing” columns
Source: The Banks’ Association of Turkey. Maturities indicated refer to remaining maturities of assets/liabilities, and hence for loans and deposits differ from the initial
contractual maturities indicated in Table 1

Turkish Banks: Tapping the Bond Markets

November 2010  6 
 Banks

Table 6: Recent International Bond Issuance by Turkish Banks

Amount Fixed/ Fitch rating Issuer’s LT
Issuer Issue date issued floating Yield Term Final maturity assigned IDR
Bank Pozitif October USD150m Fixed 7% p.a. 5 years October 2014 BBB‐ BBB−
2009
Akbank July 2010 USD1bn Fixed 350bp over US Treasuries; 5.125% p.a. 5 years July 2015 BBB‐
Kuveyt Turk August USD100m n.a. Investors in sukuk bonds have an interest in 5 years 2013 BBB‐ BBB−
Katilim Bankasi 2010 and rights to a portfolio of leased assets and
murabaha contracts; the traditional concept
of yield is not applicable.
Yapi ve Kredi October USD750m Fixed 5.1875% p.a. 5 years October 2015 BBB‐ BBB−
Bankasi 2010
Note: Fitch Ratings has also assigned Turkiye Is Bankasi’s forthcoming eurobond issue an expected rating of 'BBB‐'.
Source: international press/issuers

in the wholesale markets. Bond issuance is still at an incipient stage in Turkey, but
efforts are being made to further develop the domestic capital markets and it is
hoped that the BRSA’s clarifications regarding TRY bank bond issuance, coupled
with low domestic interest rates, will help to stimulate this. Fitch understands that
a number of the country’s leading banks are preparing to tap the international
markets over the next few months. Investor confidence in the country’s well‐
managed banking sector is growing, but the domestic pension fund industry is still
underdeveloped in Turkey, and even insurance companies have little appetite for
long‐term assets. However, as these markets develop, demand for longer‐term
securities should grow, and Fitch expects the country’s leading banks to become far
more frequent capital markets issuers. 

Outlooks for the Ratings 
The Outlooks assigned to the Long‐Term IDRs of all leading Turkish banks are
Stable, and the opening‐up of the capital markets has no immediate rating
implications for the banks rated by Fitch at present. On the whole, Fitch views the
opening‐up of capital markets for Turkish banks positively, especially given the
BRSA’s demonstrated willingness to ensure that debt issuance progresses in a
controlled manner. While issuing in FX brings the added complication of managing
exchange rate risk, regulations strictly limit Turkish banks’ ability to run open FX
positions and the BRSA has precluded banks from extending consumer loans in FX.
Interest rates in Turkey, long both high and volatile in a high inflation environment,
have been on a downward trend: the Central Bank cut its policy rates by nearly 10
percentage points during 2009. Bank bond issuance in the domestic markets is
expected to grow given current low TRY interest rates and the BRSA’s publication of
guidelines on this matter. Fitch considers that the deepening of the domestic
capital markets, and thus the ability of banks to diversify sources of funding will
prove positive for ratings over time.

Turkish Banks: Tapping the Bond Markets

November 2010  7 
 Banks

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Turkish Banks: Tapping the Bond Markets

November 2010  8