UAE lenders increase support to Turkish banks: Bloomberg
One of the reasons that may account for the UAE's increasing support to Turkish banks is the improving regional and geopolitical environment.
A report by Bloomberg on Thursday revealed that UAE-based banks have been increasing lending to Turkish banks, filling a void that has been left by Western banks amid an increasingly regulated business environment under newly elected President Recep Tayyip Erdogan.
According to data compiled by Bloomberg economists, within the first half of this year, two of UAE's biggest lenders, namely Abu Dhabi Commercial Bank PJSC and Emirates NBD PJSC, arranged 61% of all syndicated loans to Turkish banks. During the same time period in 2022, the two banks covered about 15% of all syndicated loans, data from Bloomberg experts shows.
Western banks, on the other hand, have dipped their lending to Turkish banks, with data showing that banks like ING Groep BV, Deutsche Bank AG, Citigroup Inc., and Standard Chartered Plc arranged 18% of loans in the first half of this year, down from 33% in 2022.
Since Erdogan renewed his mandate in May, western lenders have become increasingly wary of Turkey's economy, particularly in light of the President's unorthodox economic policy of setting interest rates at extremely low levels, reportedly triggering inflation, capital flight, and depleting in foreign-currency reserves.
"Western lenders are wary about Turkey’s risk although there is no Turkish loan repayment problem," said Batuhan Ozsahin, chief strategist at Istanbul-based brokerage Ata Invest. Gulf countries "are ready to take more Turkey risks and so we see them more in lending to Turkish syndicated borrowings."
Another reason that may account for the UAE's support is the improving geopolitical environment which has facilitated business operations with Turkish counterparts. Several changes over the months have resulted in an improvement in business operations, currency exchange agreements, and foreign investments, as well as Emirates NBD’s acquisition of Denizbank AS in 2019.
In 2022, Turkey signed a $4.9 billion currency swap agreement with the UAE to boost its depleted foreign reserves. The year prior, Qatar and Turkey agreed to extend a swap agreement of $15 billion which was originally concluded in 2018.
Turkish banks "may have preferred GCC banking leads in recent syndications due to heightened trade and banking relations with those banks," said Pinar Uguroglu Delice, a banking analyst and head of equity research at BNP Paribas’ Turkey unit TEB Yatirim.
Even though UAE banks increased support, borrowing by Turkish banks is currently at an all-time low due to higher borrowing costs and weaker demand for hard currencies.
According to data compiled by Bloomberg experts, the number of loans arranged in the first half of this year dropped 55% to $2.9 billion from $6.4 billion a year earlier.
As Erdogan recently pointed out, he intends to give his economic minister more leverage, and foreign investors may be enticed to re-invest in Turkey's economy.
"Expected new economic reforms may change this trend, with the next round of syndications in the third and fourth quarters serving as a litmus test for foreign investors’ perception of risk in Turkey," said Tomasz Noetzel, a senior emerging-market bank analyst at Bloomberg Intelligence.