Garanti BBVA uses new Turkish reference rate for 400 million-lira loan

Garanti BBVA, the Turkish unit of Spanish bank BBVA S.A., awarded a loan of 400 million liras ($67 million) to power company EnerjiSA using a new reference interest rate designed to boost lending in local currency.

The five-year loan to EnerjiSA, owned by industrial conglomerate Sabanci Holding and E.ON, is one of the first to be linked to the Turkish Lira Overnight Reference Rate (TLREF), BBVA said on Monday. EnerjiSA will use the cash to finance infrastructure and distribution investments, the bank said.

Turkey is seeking to encourage banks to lend to companies in Turkish liras after a currency crisis in the summer of 2018 morphed low interest rate foreign currency loans into expensive liabilities.

Use of the TLREF-indexed loans is expected to become more prevalent, offering the possibility to develop the Turkish lira loan market in the long term, said Ebru Dildar Edin, executive vice president for corporate and investment banking at Garanti BBVA.

“It is a mechanism that brings advantages both to the lender and the borrower, and we think that it is a very significant step to improve the transparency and the reliability of domestic financial markets,” Dildar Edin said.

TLREF was introduced by the government and Istanbul Stock Exchange late last year to become the reference rate for corporate lending in Turkey. The authorities have promoted it as an alternative to the international LIBOR rate and a safer alternative to the over-the-counter lira swap market in London.

TLREF is calculated by using overnight repo transactions, secured by lira-denominated government debt securities and realised on the Borsa Istanbul Repo-Reverse Repo Market.