Turkey’s Isbank has sold Turkish lira (TRY) 350mn (€56mn) of 10-year domestic Basel-III compliant Tier 2 (subordinated) bonds, reaching a level of sales higher than the TRY300mn that was originally planned, the lender said on October 1.

The paper will pay 3-month floating coupons. The annual yield was determined by adding a 350bp spread over 5-year domestic government bonds.

The bonds carry an early redemption option at the end of the fifth year.

Approximately 70 qualified individual and institutional investors, including pension and investment funds, showed interest in the auction.

Combining an issuance of TRY1.1bn with a cost of 13.9494% in 2017 and TRY800mn with a cost of 27.69% in June this year, Isbank’s total outstanding subordinated loan volume reaches TRY2.25bn.

The lender has a domestic subordinated bonds issuance limit of TRY5bn, approved by Turkish banking watchdog BDDK, for qualified investors without the holding of public offerings.

Isbank’s pension fund has a 39.99% stake in the lender while main opposition Republican People’s Party (CHP) controls 28.09%, inherited from the founder of the Turkish Republic and also Isbank, Mustafa Kemal Ataturk.

Some 61.46% of the 31.04% free float was held by foreign investors as of October 1, according to Is Yatirim’s daily foreign share bulletin.

Favourite target
Isbank is usually a favourite target of Turkish President Recep Tayyip Erdogan during pre-election periods as he typically bashes the lender for its links to CHP.

However, despite the heated rhetoric of the president during his election campaigns, the lender’s current general manager, Adnan Bali, who was appointed in 2011 to replace Ersin Ozince, has been attracting praise from the government media for his patriotism. Ozince, who was appointed board chairman in 2011, resigned in March this year to serve as only the chairman of the lender’s pension fund.

Also in March, the lender made an unsuccessful attempt, blocked by the BDDK, to distribute dividends from its TRY6.8bn worth of 2018 profit. It made the attempt despite the BDDK’s recommendation to Turkish lenders to retain their 2018 profits on their balance sheets.

The lender operates with a paid-in capital of TRY4.45bn.

Its total consolidated assets grew to TRY525bn at end-June from TRY500bn at end-2018 while shareholders’ equity rose to TRY59bn from TRY56bn and loans increased to TRY303bn from TRY301bn.

Isbank, founded in 1924, placed as the largest private bank in Turkey as of the end of June, with its TRY433bn worth of bank alone assets. It was also the second largest lender in Turkey, behind state-owned Ziraat Bank, founded in 1863. Ziraat had TRY610bn of assets, according to latest data from the banking association TBB.

Isbank’s deposits rose to TRY265bn at end-H1 from TRY249bn at end-2018 while its outstanding debt securities volume increased to TRY41bn from TRY40.6bn.

Consolidated net profit declined to TRY2.87bn in H1 from TRY3.73bn from a year ago although net interest income rose to TRY11bn from TRY9bn and net fees & commissions income increased to TRY2.18bn from TRY1.68bn.

The decline in net profit was due to a jump in provisions for possible losses to TRY5.07bn in H1 from TRY2.98bn a year ago.

NPLs sold at 3% of face value
Last month, Isbank sold TRY1.1bn of non-performing loans (NPLs) at 3% of their face value, or TRY 32.4mn.

In May, the lender sold TRY418.4mn worth of NPLs for TRY30mn.

Turkish banks are working through an increasingly burdensome pile of bad loans following the currency crisis of summer 2018 that pushed Turkey’s economy into a deep recession. Much of the debt is denominated in foreign currency.

With the government growing impatient at the slow pace at which it claims Turkey’s banks are dealing with their troublesome loans, the banking watchdog last week ordered lenders to reclassify TRY 46bn of loans, mostly awarded to firms in the energy and construction industries, as NPLs. The move would mean Turkish banks’ NPLs would rise to 6.3% of total loans by year-end from 4.6%, it said. Some analysts predict a worse year-end figure.

The International Monetary Fund (IMF), meanwhile, on September 23 urged the government to implement a full review of banks’ assets.

“An early comprehensive third-party asset quality review (AQR) and ensuing stress tests, accompanied, to the extent needed, by further measures, would help shore up market confidence,” it said.

Following pressure from pro-government media, the lender announced on September 13 that it had cut monthly interest rates for housing loans to 1.17%. That still compares higher to the 0.99% campaigns launched by public lenders.