Turkish treasury to issue 3.7bn euro debt to boost state lenders' capital

ISTANBUL: Turkey's Treasury will issue 5-year debt instruments worth a total of 3.7 billion euros to strengthen the capital of state banks, it said on Monday.

Last week, Turkish state-owned lenders Ziraat Bank and Vakifbank said they had completed pricing of perpetual bonds, which will be used to strengthen capital, while Kalkinma Bank and Eximbank authorised headquarters to seek loans to boost their capital.

After last year's currency crisis - in which the lira  shed around 30 percent of its value against the US dollar - Turkey's state banks began actively providing loan restructurings to companies and spreading low-interest credit to individuals as part of a broader government effort to stem the damage.

The government debt securities will be issued to the Market Stability and Balance Fund (PIDF) owned by Turkey's Wealth Fund, the treasury said, adding that the fund would sell the securities to state lenders and in return buy banks' perpetual bonds or provide loans to strengthen their capital.

Around 38 percent of the total issuance, 1.4 billion euro, will be used to strengthen the capital of state lender Ziraat Bank, Turkey's largest bank by asset size, the treasury said.

Earlier this month, Turkey pledged 28 billion lira to boost the capital level of state banks and relieve bad debts in a sector left reeling by last year's crisis, as the country moved to revive an economy plagued by double digit inflation and recession.

Ziraat Bank said it had priced its Additional Tier 1 (AT1) notes worth 1.4 billion euros, while Vakifbank said pricing of its AT1 notes with a nominal value of 700 million euro had been finalised on April 18.

Economists have raised concern over a spike in the Turkish banking sector's non-performing loan ratio. Finance Minister Berat Albayrak said last week the ratio stands at around 4.2 percent and described it as "quite good."

Last week, Halkbank said it plans to issue debt instruments or borrow in the Turkish market and abroad, to meet its Additional Tier 1 (AT1) capital requirements.