Securitization is one of the most of import tools to finance a house ; hence, its volume and importance has increased in last three decennaries. It is a fiscal tool to pool assets and turn them into tradable securities. In Turkey, securitization is still developing compared with European states and the US. Even though it has a strong potency for the development of the securitization, it is still non at desired market degrees. There are still obstructions and legal limitations to be addressed. In this survey, the securitization procedure in Turkey is examined and legal and regulative obstructions related to the securitization are tried to be explained.
Asset Backed Securitization
Asset Backed Securities ( ABS ) or the securitization is the procedure of raising financess through issue of marketable, liquid securities backed by original assets that the house has already owned. In other words, securitization defines a originative manner and consequence of change overing regular, distinctive hard currency flows from a diversified pool of non-marketable bing or future assets of similar type, size and hazard class into marketable, debt and equity duties. It allows investor to better its liquidness place without increasing in the balance sheet ( Jobst, 2006 ) .
Figure 1 Structure of securitization ( www.usbankcortrusteeservices.com )
Securitization offers a figure of benefits to the issuer:
enabling issuer improved marketable and more liquid assets,
connects fiscal markets and the capital market ; therefore, lowers agents intermediation cost through economic specialisation,
greater investing flexibleness through diversified securities,
securitization provides active and well-developed fiscal markets,
increases the pool of capital that can be lent by taking assets from balance sheet,
pooling and administering fiscal assets provides investor to distribute the hazard,
offers extremely customized plus categorization to investors,
improves balance sheet liquidness by change overing long-run and illiquid receivables into financess that can be used for extra value-generating investing,
All of those characteristics are benefits of plus backed securitization but some consequences of securitization are non really bright as defined above in footings of accounting issues. The disadvantages of securitization are as follows:
Complex process-making the fiscal construction really complicated and requires legal expertness through whole procedure. It requires big range of structuring so it may non be efficient for small-medium size houses.
Decreasing the balance sheet by doing it smaller than its existent value causes issues in accounting
Credit rhythm jobs make people borrow more than they should and causes regulative jobs.
Costss are associated with legal and direction fees.
Bankruptcy: Market has experienced many such crises in the yesteryear where plus backed securitization played a function.
Securitization History in the World
Securitization started as a manner for fiscal establishments and corporations to happen new beginnings of support either by traveling assets off their balance sheets or by borrowing against them to refinance their inception at a just market rate. It reduced their adoption costs and in the instance of Bankss, lowered regulative minimal capital demands.
International fiscal markets met new fiscal tools depending on developments that impact fiscal markets in 1970s. Those new fiscal tools or inventions appeared as noticeable developments in the market as forward, hereafter, barter, option and plus backed securitization. Banker ‘s sedimentations, bonds, equities and fiscal measures were the traditional funding resources until the beginning of the sixtiess. New motions in international fiscal markets caused plus backed securitization to be an of import tool alternatively of traditional investing banking applications in 1970s and 1980s.
Asset backed securitization began with the structured funding of mortgage pools in the 1970. Following that, the private sector began securitization in 1977. Any current or future hard currency flow that is generated by assets can be securitized:
recognition card receivables
record album receivables
Unsold air hose tickets.
Fiscal Market Dynamics in Turkey
After fiscal crisis in 1970s fiscal reforms, liberalisation and deregulating have been implemented along with political ordinances. 1980s were the aureate old ages in any country in Turkey and Turkish private and public sectors had undergone a figure of ordinances due to the planetary economic system. The denationalization plan was initiated by the authorities to better economic productiveness through state. Those determinations led to do Turkish currency exchangeable and removed the limitations on hard currency flow in and out of the state. As a consequence, foreign investings flow has increased by those inaugural policies.
The stabilisation plan launched execution under the Internationally Monetary Fund. Financial ordinances followed in 1981 when limitations on involvement rates were removed. In 1984, foreign exchange trade was liberalized and resulted in reopening of Istanbul Stock Exchange. It was followed by unfastened market operation in 1987. In 1989, ordinances regulating capital mobility by foreign investors were revised to let non-residents to buy securities under the premiss of diversified portfolio investing versus direct foreign investing. In 1994, the Istanbul Golden exchange was opened as portion of reorganisation attempt of Turkey ‘s gold market. ( Etkin and Helms.etc 2000 )
Turkish fiscal market was hit by two crises in 1994 and 2001. The productive sectors of the economic system were peculiarly harmed in an environment dominated by big motions of short-run capital, high involvement rates, overvalued currency and a dead export market. The state of affairs was worsened because the Turkish authorities was non disciplined plenty and unable to run into its budget. It had to borrow from the domestic market with high involvement rates. As a consequence, the economic policies in Turkey in the 1990s led the private sector to borrow from abroad and impart to the authorities. Investing for production was discouraged.
Turkey ‘s fiscal market is chiefly dependent on the Istanbul Stock Exchange ( ISE ) – the exclusive stock or securities exchange in the state. This market has been marked with fickle economic growing and serious instabilities in the recent old ages due to the recent fiscal convulsion.
Securitization in Turkey
In 1992, the first asset-backed securities issue was launched ( Capital Markets Board Communique Series III, No.14, published in the Official Gazette 2499, of July 31th 1992 ) . Capital markets jurisprudence measure passed in 1992. Asset back securitization in Turkey does non hold long historical background like other states. Legislation comprises these establishments: Bankss, fiscal leasing companies and fiscal investing trust companies. It is required to hold a bank warrant from fiscal establishments except form Bankss in Turkey.
Harmonizing to the capital market board, plus back issues should be based on:
Consumer credits: Loans are provided by Bankss for persons every bit good as corporate entities
Receivabless from mortgage
Receivabless by fiscal rental understandings
Receivabless due to the exports
Other receivables: receivables of joint stock corporations from gross revenues represented by notes
Receivabless from existent estate investing companies
Small-size endeavor loans extended by particular intent province Bankss ; and
Receivabless of existent estate investing companies represented by notes arising from existent estate gross revenues or option understandings.
Consumer loans or credits were non allowed after 1995 due to the rising prices concerns. Receivables from exports and from agricultural co-ops were included in 1995. Receivables against craftsmans and craftsman loans and consumer loans were included in the system in 1997. The rate of entire issue asset-value backed securities to entire value exports has been 55 % between 1992 and 1997. Those issues were really successful during that clip.
It gained its strength with the Mortgage Law in 2007. The Mortgage jurisprudence was passed on February 21th in 2007 and was offering a figure of developments sing foreclosure, consumer protection, capital markets and revenue enhancement. The jurisprudence had two chief aims: to advance mortgage loaning to persons and to make secondary market for the conceivers since it has non gained desirables success for secondary market before ( Standard & A ; Poor ‘s, 2007 ) . Its purpose is to heighten mortgage lending and it besides allows hazards to be carried to the other parties who are willing to take them and increasing the support for mortgages. The jurisprudence besides provides for the constitution of mortgage finance companies that can raise non-deposit financess and intercede the securitization procedure ( Turhan, 2008 ) . The ordinances for primary and secondary market besides came with the jurisprudence. Those ordinances include the revenue enhancement inducements, professional valuators, and segregated securitized assets from issuer by the mortgage jurisprudence. Banks, fiscal houses, mortgage finance corporations and fiscal intermediary establishments are empowered to be the laminitiss. Fund board members are required to obtain licence by capital market board. The construction was formed more into formal form by the mortgage jurisprudence.
Rating establishments have become compulsory for public issuers after the jurisprudence and it besides has brought internal hearer demand.
With the Mortgage jurisprudence receivable can be arising from ;
Credit gross revenues of joint stock houses
Recognition cards, consumer loans, commercial mortgage loans and vehicle loans
Property gross revenues of lodging development Agency,
Other assets approved by Capital Market Board.
Checks and traveller ‘s cheques remittals ;
Electronic remittal payments ( generated chiefly from Turkish and German workers ) ; and
Diversified payments in the international fiscal markets.
It was a reform in footings of plus backed securitization advancement. The old jurisprudence lacked of ordinance thereby go throughing new jurisprudence would supply desirable environment to use asset-backed securitization in Turkey. With the new jurisprudence involvement rate decreased so the demand in lodging increased. It brought transparence and liquidness hereby Turkey played an of import function in the international market and fiscal market became more attractive for foreign investors.
Main aims of the jurisprudence are:
lodging funding via capital markets
low involvement rates and more low-cost debt duties
incensement in lodging supply and reconstruct building industry
Establishing new fiscal instruments to the market.
Turkish Bankss have securitized all those receivables by the jurisprudence. The flow of minutess has provided long-run, lower-cost difficult currency funding to Bankss in Turkey. Turkish Bankss with high-quality assets but lower evaluations from recognition evaluation bureaus have been able to obtain cheaper financess through securitization than by borrowing from the money markets. The major Bankss involved in international plus securitization have become more liquid ; therefore, cut downing hazard and cost ( Pekin et al.2008 ) .
Future Flows Transaction
Future flow minutess are really common applications among the emerging markets in the universe. In 2006, future flow minutess reached highest figure with entire issue making about $ 5.8 billion. The hereafter flow minutess have been backed by diversified payment rights ( Standard & A ; Poor 2007 ) . Diversified payment right involves securitization of future payments orders. DPR normally take a signifier of either true sale construction or a secured loan construction. DPR deals the most common manner of securitization in Turkey ( Ferry, 2009 ) . As it can be seen in Figure 2 after the planetary fiscal crisis Numberss are dropping but still future flow minutess have survived in the clip of fiscal turbulency.
Figure 2 Turkey ‘s future flow issue 2002-2009 ( Standard and Poor ‘s ( 2009 ) )
Issues in Securitization
Even though bing assets dealing represent immense chance for plus backed securitization, certain countries related to the jurisprudence are still non clear in the system. The Turkish mortgage system is developing and really new compared with other mortgage applications in the universe.
The securitization issue in Europe and the US are shown in table 1 and table 2. It can be seen that issue volume has increased until 2008 and from that day of the month it has small lessening in the volume due to the fiscal planetary crisis in 2008. The figure shows that the use of the securitization is really high in these states.
Table 1: Securitization issue in Europe Table 2: Securitization issue in the United states
All volumes are denominated in euro. The US volumes were converted from dollar to euro based on the $ /a‚¬ exchange rates as of quarter-end.
Numbers may non add due to independent rounding. Historical or anterior period Numberss are revised to reflect alterations in categorization, refined choice methodological analysis, or information submitted to our informations beginning after the anterior period cut-off day of the months.
The volume of securitization in Turkey is shown in Figure 3, as entire sum of securities has grown in old ages, the plus backed securitization has decreased and have non been issued since 1998. Even though Mortgage measure has been enacted in 2007, it would non be an option to put in market for the Turkish investors so far. Apparently, the passage of the Mortgage jurisprudence did non trigger addition in plus backed securitization in the market. It depends on several factors ; thereby, those challenged should be taken into history to better possible market in Turkey.
Asset Backed Sec. ( TL Thousand )
Table 3: Volume of Securitization in Turkey ( www.cbm.gov.tr )
Challenges in the circulation are impacting the development of the securitization. This jurisprudence or system has been adopted the application in other states yet. It is believed that regulative governments still have to work on the version procedure. It needs legal supportive environment in order to be achieved as a whole.
One of the biggest challenges that Turkey must get the better of is its ain evaluation ( BB/Stable/B ) , which makes investing -grade degree hard. Rating a dealing above the crowned head refers that the implicit in assets would maintain executing even the crowned head has defaulted on its foreign currency duties ( Standard Poor ‘s, 2007 ) . The deductions of the autonomous hazards should be understood first. Sovereign hazards are of import factors in delegating evaluations to the plus backed securities but it does non needfully crest the plus backed securitization. Asset backed securitization dealing are capable to hazards such as repatriation hazard, rising prices, currency devaluation transportation and convertibility hazard and fiscal system hazards.
Transportation and Convertibility Risk: The possibility of authorities curtailing the ability to change over local currency into foreign currency and reassigning it abroad is known as transportation and convertibility hazard ( Standard & A ; Poor ‘s 2006 ) . Those restrictions cause a default on securities and give no entree for plus backed securitization environment. Turkey ‘s T & A ; C evaluation is ‘BBB’- , so to extenuate hazard further recognition sweetening is required.
Legal Issues on true sale: The mortgage jurisprudence recognizes true gross revenues of receivables as the assignment of bing and future receivables. Furthermore, an assignment will be an executing of a written understanding between assignor ( in a securitization contract, the conceiver ) and assignee ( in a securitization contract, the particular vehicle intents ) ( Pekin and Borovali 2008 ) .
Receivabless arising from a contract might be assigned to a 3rd party without permission of the debitor. In the absence of the debitor permission, it can dispatch its duty by doing payment to the assignor straight. From that position, advising obligors in authorship of assets and having permission from the obligor should be chief demands in the system.
Bankruptcy: In general footings, Turkish jurisprudence categorizes understandings into three groups in in term of the effects of bankruptcy:
Agreements that automatically terminate upon bankruptcy of one of the parties
Agreements that become capable to particular understandings and ordinances under the bankruptcy strategy
Agreements that continue to be valid.
There is no specific government is set out under Turkish jurisprudence for the assignment of receivables contracts. Therefore, in the event of the conceiver ‘s bankruptcy, the assignment understanding will fall under the 3rd party and will maintain being valid and enforceable until the bankruptcy disposal decides upon the destiny of assignment understanding ( Ozeke 2005 ) .
There are no evidences for invalidating the sale unless the assignee is cognizant of, or has acted together with the assignor in, a deceitful transportation. Third parties can non forestall the SPV from geting any of the hereafter receivables and related aggregations as they are generated.
In the event of the conceiver ‘s bankruptcy or receivership, any bing contract with the recognition card companies is automatically terminated. The conceiver becomes unable to come in into a new contract with any recognition card company that is free from the SPV ‘s and/or legal guardian ‘s claims.
Harmonizing to Article 280 of the Execution and Bankruptcy Law ( Law 2004 ) , an assignment of receivables becomes null and invalidate if the assignor makes it in the five old ages before its insolvency or bankruptcy with the purpose of forestalling the aggregation of claims by third-party creditors and the assignee is cognizant of this purpose ( Pekin and Boravali, 2008 ) .
Re-characterization hazard: A 3rd portion may declare that the party ‘s existent purpose is to develop a security involvement instead that reassign rubric under the securitization. Agreements of under this nature would null and invalidate harmonizing to the Turkish jurisprudence. Re-characterization hazards exist and have immense consequence in the event of bankruptcy. The intent of the parties to reassign rubric into the assigned receivables outright and non simply to make a security involvement, must be constituted every bit clear as possible to streamline hazard and supply more secure environment ( Guniz, 2006 ) .
Regulatory: Neither purchase nor the service receivable are capable to hold a licence under the Turkish Law ( Mayor and Brown, 2009 ) . There are no limitations on money transportations, currency exchanges, so those regulative issues exist and create obstructions when they participate in cross -border minutess. There is no specific jurisprudence or ordinance regulating offshore plus backed securitization. Developing a regulative system under the jurisprudence is critical to command over transverse boundary line minutess.
Political and Economic hazards:
Volatility has been ever a job in emerging market Turkey has great potency for securitization in footings of its geopolitical place among its neighbours. Albeit this possible, it has to guarantee political and macroeconomic stableness.
Short adulthoods, high involvement rates and ensuing high monthly payments still may present jobs for securitization. Turkey should get the better of those jobs foremost before it will be to the full successful to accomplish plus backed securitization ( Standard & A ; Poor ‘s 2007 ) . Macroeconomic conditions such as 2001 and 2006 economic crisis have restricted mortgage conceivers. High rising prices rate resulted in decreasing in buying power and people did non put in any fiscal vehicle.
Political environment besides should take into history for development of the securitization. Turkey still is enduring from Kurdish job and it increases volatility in footings of political jobs. Problems with Armenia and Cyprus besides should be overcome for more political stable environment.
Turkey is an emerging market among its neighbours with its ain dynamic constructions and there is enormous outlook in footings of plus backed securitization application by international evaluation establishments. The plus backed securitization in Turkey is chiefly based on application in the US but at that place chief differentiations between these states in footings of fiscal system, revenue enhancement advantages and regulative environment. The United States has a function theoretical account for the other states in the universe hence fiscal system and capital market are more comprehensive and regulative establishments and fiscal intuitions are really developed.
The first asset-backed securities issue was launched in 1992. Consumer loans or credits were non allowed after 1995 due to the rising prices concerns. The rate of entire issue asset-value backed securities to entire value exports has been 55 % between 1992 and 1997. It gained its strength with the Mortgage Law in 2007.
The Turkish mortgage system is developing and really new compared with other mortgage applications in the universe. As entire sum of securities has grown in old ages, the plus backed securitization has decreased and have non been issued since 1998. The passage of the Mortgage jurisprudence did non trigger addition in plus backed securitization in the market.
Challenges of Turkey can be summarized as:
Sovereign Risk Problem
Transportation and Convertibility Risk
Legal Issues on true sale
Political and Economic hazards
Among these, most of import job is Political and Economic hazards. Stable political and macroeconomic is a must for development of securitization alterations should be made in legal environment. Execution of legal ordinances, betterment of serving, political and economic stableness and recognition sweetenings should be the countries that the authorities has to concentrate on. There is adequate room in the market for those fiscal tools and Turkey could be really in a stronger place than other emerging states. The authorities should optimise fiscal conditions and modulate legal model.