Covered bonds will be an important asset class in Turkey within the coming years, according to an official at Sekerbank, who said the issuer is targeting an inaugural euro deal this year. Meanwhile, Isbank is the latest Turkish bank to turn to the asset class.

Speaking at an ICMA-The Covered Bond Report conference in Frankfurt on 15 May, Zeki Önder, executive vice president at Sekerbank (pictured, left), said that covered bonds will be an established product in the market, appealing to a variety of investor types, both domestic and international.

“Covered bonds are going to be a way of financing Turkish banks and we will see more Turkish banks utilising them,” he said. “I think the way they are used will complement the needs of varying investor types.”

Sekerbank is one of three Turkish banks that have issued covered bonds in recent years – DenizBank and YapiKredi are the others – although more are turning to the asset class.

Isbank is the latest to join the pipeline. It last week announced that its board of directors has authorised the establishment of a covered bond programme for issuance of up to Eu2bn or the equivalent in any currency.

Turkish covered bond issuance has so far been backed by SME loans and sold to supranational institutions, but banks such as Garanti Bank and Vakifbank are targeting mortgage-backed issuance.

Asked by panel moderator Friedrich Luithlen, head of covered bonds at DZ Bank (pictured, right), to paint a picture of the Turkish covered bond market in five years’ time, Sekerbank’s Önder said that it would feature multiple types of collateral, including mortgage-backed, SME-backed, and other asset-backed covered bonds.

“They will definitely be established by then,” he said.

He added that he was keen for Sekerbank to issue in euros as it would attract a wider range of investors from Europe.

“We would like to keep it in Turkish lira, and for those that will invest in Turkish lira, they will be able to continue to do so,” he said. “But for those that will invest in euros, we want to be able to have that option. It is about investor diversification.

“If everything works out as planned, we hope to start this year with our first euro issuance.”

Covered bonds issued by Sekerbank are the highest rated securities issued out of Turkey, according to Önder, who noted that they are rated four notches above the issuer rating.

Sekerbank is rated Ba1 by Moody’s and BB- by Fitch. Its covered bonds are rated A3 by Moody’s, on review for downgrade, reflecting the status of the issuer’s rating.

In January, the Capital Markets Board released a communiqué unifying and improving Turkey’s mortgage and asset-backed covered bond laws. Önder said the updates had enhanced rather than revised the existing legal framework, adding that key update had been to allow for euro issuance.

“For our programme, though, not much has been changed by the updates as our product is in line with the updates,” he said.