VakifBank yesterday (Monday) applied to the Capital Markets Board (CMB) of Turkey for authorisation to issue Eu1bn of mortgage covered bonds, after the Turkish framework was amended in September, paving the way for the first mortgage-backed issuance from the country.

Turkish banks have only previously issued SME backed covered bonds, the first having been from Sekerbank in July 2011, which have been privately placed with supranationals and development agencies.

However, banks including Garanti Bank and VakifBank have previously indicated that they would like to target a wider international investor base through mortgage-backed covered bonds (İpotek Teminatlı Menkul Kıymet, or ITMK). VakifBank announced in July 2013 that it had received board approval for such issuance but not approval from the CMB.

Since then the two separate Turkish frameworks for asset-backed covered bonds (including SMEs) and mortgage-backed covered bonds have been unified, in January, through a CMB communiqué. According to a CMB official, the communiqué was then amended in September, with the changes including (in the words of the CMB official):

- Issuers do not have to sign an agreement with a replacement servicer anymore.

- Minimum rating score of hedging counterparties is downgraded to investment grade which was one of the highest three levels within the investment grade.

- Issuers will be able to utilise cash inflows from cover assets on condition that matching requirements are met and the issuer does not default.

- Outsourcing principles regarding cover pool management are determined.

- Some provisions are reviewed in order to facilitate covered bond issues abroad.

The revisions were intended at facilitating covered bond issuance by clarifying opaque provisions that had been hindering progress, according to a market participant. He said that the first mortgage-backed issuance should emerge soon.

Garanti and Akbank have outstanding applications with the CMB for mortgage covered bond issuance, with Garanti having applied in January and Akbank in July.

VakifBank was unreachable for comment before publication. Natixis and UniCredit are understood to have been working with the Turkish bank on its potential issuance.

Moody’s said at the end of last month that Turkish mortgage covered bonds would resist most downside economic scenarios.

Photo: Capital Markets Board of Turkey