Türkiye İş Bankası (İşbank) completed the process of establishing a new mortgage covered bond programme on Friday, and on the same day received a provisional Baa1 rating from Moody’s for a first series of euro-denominated covered bonds, based upon an expected size of Eu500m.

An official at Ä°ÅŸbank told The CBR that it obtained approval for its Eu2bn (TL7.79bn) mortgage covered bond programme from the Capital Markets Board (CMB) of Turkey on 14 April, and that the programme was established on Friday.

The provisional Baa1 covered bond rating is capped at the local currency bond ceiling of Baa1, but is higher than the foreign currency ceiling of Baa2 because mitigants are in place to lower the risk of transferability and convertibility, said Moody’s.

As of 12 April, İşbank’s cover pool totalled TL4.05bn, according to Moody’s. The rating agency said, assuming an issuance size of Eu500m, the overcollateralisation in the pool is approximately 106% on a nominal value basis, of which the issuer is expected to provide 21% on a committed basis for the first series.

Moody’s rates İşbank Ba1, on negative outlook.

İşbank was unable to respond to a request for further comment on its covered bond issuance plans by The CBR’s deadline.

VakıfBank sold the first and to date only euro-denominated benchmark covered bond out of Turkey, a Eu500m five year mortgage-backed issue, in April 2016.

Hopes for further supply were lowered because of increased political uncertainty around the jurisdiction following a failed military coup in in July and a subsequent downgrade of the sovereign. In the wake of the coup, Moody’s cut Turkeys local currency ceiling from A3 in conjunction with the downgrade of the sovereign in September, resulting in downgrades of all the established Turkish covered bond programmes Moody’s rates from A3 to Baa1.

Market participants, including one issuer, later said that covered bond investors’ price expectations were too high for them to enter the market in 2016.

Last Thursday Ä°ÅŸbank issued a $750m seven year senior bond, shortly after a constitutional referendum on 16 April that gave president Recep ErdoÄŸan extended executive powers. Markets had priced in the victory for ErdoÄŸan, with sovereign bond yields tightening as investors expect the result to reduce political uncertainty and raise the prospects of economic reforms in the country.

Türkiye Garanti Bankası and Yapı ve Kredi Bankası also each received CMB approvals related to covered bond issuance this month, having previously established programmes.

Photo: John Walker/Flickr