§
Russian and Turkish banks are the
most prolific issuers in hard currency bond markets in CEE and CIS. Turkish
banks’ bond issuance has ballooned, with US$9 billion printed last year versus
the current outstanding amount of US$14 billion, and close to US$2 billion
issued this year.
§
Turkish banks have outperformed
Russian banks since January 2012. Spreads tightened by an average 300bp
since January 2012, outperforming Russian banks’ spreads by 40bp. Valuations
are now quite tight despite the recent 30bp sell-off, with Turkish banks on
average at z+290bp versus Russian banks at z+327bp.
§
Fundamentals offer different
perspectives. In general, key credit metrics look more solid in Turkey. At
the same time, high-quality quasi-sovereign banks dominate the Russian
banking sector.
§
Strategy implications: We remain market-weight on EM banks in our
sector allocation. We maintain a preference for senior bonds in both
countries. We add two new trades in Turkey: Buy AKBNK ’18 and add HALKBK ’17
as a pick-up over the sovereign. We reiterate our preference for
quasi-sovereign banks in Russia and short-dated paper of the private sector
banks.
Russian and
Turkish banks are the most prolific issuers in hard currency bond markets in
CEE and CIS. The combined assets of the two sectors represent 58% of the
banking universe in this region. Of
note, the Russian banking sector is more consolidated than Turkey’s –
Sberbank has a 27% leading market share of assets, while in Turkey the
largest bank controls only 13% of market share. While Russian banks have been
regular issuers in the hard currency bond markets, Turkey is a relative
newcomer. Turkish banks have issued close to US$11 billion hard-currency
bonds since January 2012, nearly tripling the US$4 billion outstanding back
in 2011. In January 2013 alone, Turkish banks printed close to US$2 billion,
and this excludes the first TRY-denominated Eurobond from Akbank, equivalent
to US$600 million (see Exhibit 1). Of further note, Russia and Turkey
financials bond supply has seen an increase in subordinated bonds and perps,
especially in Russia (see Russian Banks – Squeezing in Subs,
November 29, 2012).
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