Tuesday, June 28, 2016

Turkey Cut Overnight Lending Rate by Total of 175bps since March; UK on Negative Outlook by Moody’s


27 June 2016


Global Sukuk Markets Weekly

Turkey Cut Overnight Lending Rate by Total of 175bps since March; UK on Negative Outlook by Moody’s

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices were largely unchanged at 104.1 (+0.13%) and 160.3 (+0.34%), with yield falling 1.5bps to 2.455% — as investors flocked to safe haven assets such as SECO 4/43 (-20bps), SECO 4/44 (-19bps) and ISDB 6/18 (-17bps), amid the UK referendum-related volatility. Nevertheless, the impact of Brexit on most Gulf economies is limited; however, we opine that this will reignite concerns on global growth, with a stronger USD driving oil price lower. On Friday alone, Brent oil fell 5% to USD48.41/bbl. Meanwhile, markets are pricing the likelihood of Fed hike at about 15% this year.
¨   Central Bank of Turkey (CBRT) cut overnight lending rate by 50bps to 9.0% for the fourth consecutive month, and kept other key rates unchanged. Elsewhere, the outlook for UK was revised to negative from stable by Moody’s, on expectations of (1) heightened uncertainty during the negotiation period, (2) potential challenges on institutional framework, and (3) weaker public finances.
¨   Over in the MYR primary market, Al Dzahab Assets (AAA) issued MYR155.48m 3y-10y Sukuk Murabahah to undertake personal-financing securitisation through RCE Marketing, while Chellam Plantations (Sabah) (AAA(fg)) printed MYR300m 4y-10y Sukuk Murabahah to refinance existing bank borrowings — together with MYR100m 5-10y FRN. On the other hand, Employees Provident Fund (EPF) allocated an initial fund size of MYR100bn Shariah compliant retirement saving — about 15% of total investment asset of MYR682bn in March, and targets to maintain a minimum of 45% Shariah-compliant base. We expect continued interest for Islamic assets in the long run, in tandem with growth in the sovereign fund size.

SOVEREIGN/CORPORATE UPDATES
Country/Issuer
Update
RHBFIC View
Turkey
(Baa3/Neg; BB+/Sta; BBB-/Sta)
Central Bank of Turkey (CBRT) cut overnight lending rate by 50bps to 9.0% in June, and a cumulative of 175bps since March. But, the one-week repo rate and overnight borrowing rate were kept unchanged at 7.50% and 7.25% respectively.
The lower overnight lending rate is likely to lower bank’s cost of funding and boost their profitability, as the bank’s deposits are predominantly in shorter term. But, with high foreign currency exposure in the sector’s total liabilities, the benefits of interest rate cut could be retreated though depreciation in Lira.
TURSK 3/18 and 10/18 added 1bp to 2bps to settle at 2.82% and 2.89% respectively; while longer-dated TURSK 6/21 and 11/24 moved -1bps to -5bps at yields of 3.93% and 4.38% respectively.


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