EBRD buys into debut Turkish covered bond

LONDON: The European Bank for Reconstruction and Development said on Thursday it had bought up a 10 percent chunk of Turkey's first property-backed covered bond.

The EBRD said it had taken 50 million euros ($56.81 million)of a 500-million-euro "covered bond" issued by Turkish lender VakifBank, adding it was part of a drive to broaden sources of funding for banks in what is now the EBRD's biggest market.

VakifBank launched the five-year bond earlier this week, selling it at 250 basis points over "mid-swaps", a market benchmark which many bonds are priced off when they are sold.

It received over 100 orders from bond buyers and could have sold as much as 1 billion euros. "We hope that the Turkish banks will embrace the covered bond market," EBRD Director for Financial Institutions Noel Edison said.

"It gives access to a larger pool of longer-term investors with lower funding costs, reducing reliance on deposits and short-term wholesale funding and helping to address the asset-liability mismatch (on their books)."

Covered bonds are seen as some of the most secure forms of bonds as they give investors a direct claim on the collateral on the underlying loans, such as the property.