Turkish government to tap additional TRY2.5bn private pension funds

[…] might see some new short-term issues by the Treasury… or the funds will have to buy the secondary bond market,” an unnamed bond trader told Reuters on May 28.

Turkish private pension funds have a combined TRY10.5bn in their liquid money market funds, according to unnamed bankers cited by the news agency.

The net asset values for “money market funds” and “standard funds” currently stand at TRY9.6bn and TRY3.9bn, respectively, Seker Invest said on May 28 in its daily market watch.
Not the first time
This is not the first time that the currency crisis and recession-hit Turkish government is “encouraging” private pension funds to invest in line with its economic bailout policies. Pension funds have already bought local lenders’ mortgage-backed securities issued via the Turkish Development Bank (TKB). The total amount of mortgage-backed securities issued via the TKB stands at around TRY4.7bn since last November. However, there is no available data on the pension funds’ purchases.

The total fund size of the Turkish pension funds industry was TRY94.5bn as of May 17, while mandatory pension funds accounted for TRY5.9bn, according to the latest data the pension monitoring center.

Turks try to avoid the private pension system since the funds’ returns are lower than inflation and the return on dollars. However, the government is getting ready to introduce a tighter mandatory participation system.
Another favourite fund
Another favourite fund of the Turkish government is the unemployment fund. It has been used to strengthen the equity of public lenders. The unemployment fund is also in the red due to buying domestic government bonds at lower interest rates and paying employment incentives to private companies.

As things stand amid Turkey’s economic turmoil, it is clear that the government is overcoming the lack of appetite to provide for its domestic borrowing needs via “encouraging” local lenders and pension funds to buy government bonds and it is overcoming its foreign borrowing shortage via “encouraging” local lenders to park their offshore FX deposits at the central bank to comply with rising reserve requirement ratios.

The course of the USD/TRY rate and government bond yields, meanwhile, still seem subject to the control of the “invisible hand” of the government, which for several years has successfully ‘bought time’ with such tactics. […] global default league. The Financial Times reported that Pakistani clerics have declared a fatwa against sinful dollar buying.

“Next stop Turkey?” Timothy Ash of Bluebay Asset Management responded on Twitter.

Turkish clerics—except President Recep Tayyip Erdogan’s old ally turned enemy Fethullah Gulen, where he’s self-exiled in the US strenuously denying he had anything to do with the failed 2016 coup attempt against the Erdogan administration—have on numerous occasions urged Turks to sell their dollars. Erdogan himself, buffing his AKP party’s Islamist-rooted and patriotic credentials, has made similar calls. But Turks’ FX deposits have been expanding at a record rate since the executive president declared war on the dollar.

Since last November, the Turkish Treasury, headed by Erdogan’s son-in-law Berat Albayrak, has also been boosting its FX borrowings at home and abroad.

The Treasury is collecting bids for 364-day EUR-denominated domestic lease certificates by May 29, it said on May 27. The lease certificates will semi-annually pay 1.50% coupons.

Scrambling to raise revenue, the government will soon introduce a new […] Istanbul revote on June 23, Ozan Bingol of Baskent Universiy told daily Cumhuriyet on May 28.
Refuelling the KGF
As part of the non-stop pre-Istanbul rerun stimulus programme, the government is also refuelling the credit guarantee fund (KGF). Accordingly, the KGF will provide 80%-guarantees for small and medium sized enterprises (SMEs) on fresh loan lines of up to TRY500mn with maturities of 30-60 months and a 12-month grace period.

Akbank, Garanti Bank, Isbank, TEB, QNB Finansbank, Vakifbank, Denizbank, Sekerbank, Ziraat Bank, Yapı Kredi Bank and Ziraat Participation Bank will provide fresh loans under KGF guarantees.

The KGF provided TRY250bn worth of stimuli to Turkey’s SMEs in 2017 without conducting audits. There was speculation that craftsmen subsequently bought yachts […] Administration (KOSGEB) had the largest KGF stakes of 29.2% each, according to the fund’s latest activity report.

Some 27 local lenders each had a KGF stake of 1.54% with each bank’s participation amounting to TRY4.9bn.