April 17, 2019 / 11:18 AM / 6 months ago

Turkey's Halkbank to boost capital with new debt and borrowing

ISTANBUL, April 17 (Reuters) - Turkey’s Halkbank will issue debt instruments and borrow in domestic and foreign markets to strengthen its capital base, which was left thinner after the lender provided low-interest loans in the wake of last year’s currency crisis.

The state-run bank said late on Tuesday it plans to issue debt instruments or borrow a total of 2 billion euros and 10 billion liras ($1.74 billion) in the Turkish market, while borrowing 2 billion euros or equivalent abroad, to meet its Additional Tier 1 (AT1) capital requirements.

Halkbank’s capital adequacy ratio was 13.8 percent at the end of 2018, down 38 basis points from a year earlier, while its core capital adequacy ratio of 10.71 percent was down 185 basis points, according to bank’s financial statements.

Last week 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.

The issuance by Halkbank, Turkey’s sixth-largest bank by assets, could be a part of the government’s capital pledge, Oyak Yatirim wrote in a note to clients.

After last year’s currency crisis - in which the lira at its worst shed as much as half its value against the U.S. 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.

In addition, Halkbank’s overseas borrowing decreased during the U.S. court proceedings of Hakan Atilla, a bank executive accused in an Iran sanctions-busting case. That caused the lender to lean toward Turkish lira funding.

The lender did not borrow from abroad for two years during Atilla’s detention and hearings. It also did not go ahead with the issuance of up to $2 billion worth of debt instruments abroad which was decided and announced in December.

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 around 4.2 percent and described it as “quite good.” ($1 = 5.7522 liras) (Reporting by Can Sezer, Ebru Tuncay and Oben Mumcuoglu Writing by Ezgi Erkoyun; Editing by Jonathan Spicer)

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