Turkey’s Denizbank is closing its first issue off an SME backed covered bond programme today (Thursday), a TL413m (Eu168m) three tranche bond that will be bought by supranational institutions EIB, EBRD and IFC, according to an official at the bank.

The transaction makes Denizbank the third lender in Turkey to sell covered bonds backed by SME loans, after deals for Sekerbank and Yapi Kredi. It comprises two five year tranches and one with a three year maturity. The detailed terms of the transaction will not be disclosed as it is private, said an official at Denizbank.

UniCredit is the arranger of the programme. Moody’s assigned the issuance an A3 rating today.

The sale of the bonds to supranational institutions is in line with the Sekerbank and Yapi Kredi transactions. The International Finance Corporation (IFC) previously disclosed that it has approval to purchase up to TL125m of covered bonds with a bullet maturity of up to three years from Denizbank.

It said that successful issuance by the bank would “provide additional momentum to Turkey’s capital markets by replicating the first two transactions by Sekerbank and Yapikredi. Supporting the transaction would also “help strengthen the newly opened covered bond market in Turkey and allow banks (including tier 2 banks) to raise long term funding from domestic and international investors in order to finance MSMEs [micro, small and medium-sized enterprises] especially in the agribusiness sector”.

The European Investment Bank (EIB) and European Bank for Reconstruction & Development (EBRD) participated in previous Turkish covered bonds.

The Denizbank official said that the issuer turned to SME backed covered bonds because it had the assets and interest from investors and “wanted to be part of” the development of SME covered bonds in Turkey. It does not currently have plans to set up a mortgage covered bond programme, she said. This is something that banks such as Garanti Bank are exploring, alongside possible international issuance.

Denizbank has approval from Turkey’s Capital Markets Board to issue up to Eu300m of covered bonds off its SME programme in one year, said the official.