Country Spotlight: Amid Privatization, U.S. Banks Return to Turkey

After many years of doing little business in Turkey, U.S. banks are looking to this country of 62 million people as a new link in their emerging-markets networks.

J.P. Morgan & Co., Bankers Trust New York Corp., and BankAmerica Corp. are boosting currency and securities trading there as well as other activities related to capital markets.

They are also eyeing Turkey's privatization program, which the government hopes will raise $4 billion to $5 billion in revenues this year. Banks that receive a government mandate to advise the privatization of public entities could pocket millions of dollars of fees.

"U.S. banks are obviously looking to get some privatization mandates," said Gary Kleiman, president of Kleiman International Consultants Inc. in Washington. "And a lot of companies able to access international markets where borrowing is cheaper are using U.S. banks as a syndicate."

Morgan, for example, plans to significantly expand its activities in Istanbul, Turkey's economic capital, by the end of next year, most likely by setting up a locally licensed investment bank, senior executives at the bank said.

In July, Morgan helped Garanti Bankasi, Turkey's fourth-largest privately owned bank, place about $115 million in five- to seven-year notes with U.S. investors. Citicorp, which also operates in the country, has helped the same bank place two local-currency credit card-backed securitizations in the Turkish market. Citicorp also led a $50 million, five-year placement for the Efes Beverage Group with U.S. institutional investors.

Bankers Trust New York Corp., which recently opened a representative office in Turkey, plans to expand lending and other financing in the country. And BankAmerica Corp., which does not have offices in Turkey, is developing cross-border business from London.

"The Turkish market represents a key part of our emerging-market strategy," Bankers Trust said this year when it announced the formation of a London-based unit to develop banking business in emerging markets.

Bankers Trust also runs a wholly owned subsidiary in Turkey that focuses on corporate advisory services and treasury and capital markets activities. It recently acted as a project adviser and financial arranger to Trakya Elektrik Uretim & Ticaret, a joint venture consortium, and helped arrange $250 million in senior debt financing for the Marmara power plant.

Bankers Trust also helped arrange a $60 million, one-year syndicated loan for Demirbank TAS, a Turkish bank. In two other deals, Bankers Trust jointly arranged $30 million in pre-export financing for Iktisat Bankasa Turk AS and co-led a three-year senior credit facility that helped Turkiye Garanti Bankasi buy Osmanli Bankasi.

Chase Manhattan Corp., which has a longstanding presence in Turkey and branches in Istanbul and Izmir, is increasingly using Turkey as a springboard for developing business in Russia, Ukraine, and Central Asia. Meanwhile, Bank of New York Co. is arranging American depositary receipt programs for Turkish companies seeking a U.S. stock listing.

The buoyant economic outlook for Turkey, reflected by the country's booming stock market, comes despite a seemingly unending political crisis in the country and ongoing financial crisis.

The turmoil has led to high inflation-the 1997 rate is expected to be 75% - and cast doubts over the ability of many smaller Turkish banks to survive a downturn in the stock or the bond markets.

"The general feeling is that the government is going to muddle through and that the economy is going to go on," remarked Edward Thompson, senior vice president at Thomson BankWatch Inc., an affiliate of American Banker.

Still, BankWatch and others say that the outlook hardly inspires much long-term confidence.

"A key problem is that while everyone agrees on the need for change, there is still no consensus across political groups as to how things should be changed," BankWatch noted in its latest sovereign risk update.

Roughly half of all banking assets, Mr. Thompson estimated, are in the hands of the five big state-owned banks, loan quality remains poor, and many banks are still undercapitalized. In a crisis, he predicted, "established banks with access to capital markets will survive, while a lot of middle-sized banks won't get there or will be susceptible to liquidity and capital pressures.

"The gunslingers on the far end who make money from mainly from investing," he added, "will blow away in the wind."

Given the odds that Turkey's high inflation is unlikely to fall soon, Mr. Thompson said, investors and financial institutions need to keep in mind that "this is a short-term market and will continue to be a short-term market until there is a reduction in inflation."

"Banks in Turkey aren't making money on traditional lending, they making it on trading Treasury bills and in the equity market," Mr. Kleiman said.

"There's bound to be a correction in the market and although some of the banks have a cushion, there's going to be a fallout."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER