Turkey’s pivot towards a bevy of strong economic policies, which began after President Recep Tayyip Erdoğan’s re-election in 2023, has been attracting foreign investors, formerly put off by previous policies, to the country’s debt markets. 

GCC banks have been playing a crucial role in securing the right kind of investors, while the country has been actively tapping the capital markets in the last 24 months. Recent rate cuts, signs of decreasing inflation, robust participation of corporates in the sell side and the confidence of the wider Middle East in Turkey’s leadership have been prompting investors to make big bets in the country’s bond market. 

From June 2023 to January 2024, Turkey made 64 issuances including bonds and sukuk from government, financials and corporates. Volumes reached $33.6 billion in 2024 (+89% YoY).

While HSBC priced 21 deals at that time, Emirates NBD Capital, the investment banking arm of Dubai’s largest lender, Emirates NBD, priced 26 deals in Turkey last year and priced four deals in January 2025.

Ritesh Agarwal, Head, Debt Capital Market at Emirates NBD Capital, said: "Last year was super busy for us in Turkey. We priced 26 deals in Turkey last year. In 2021 we did two deals. The years 2021, 2022 and 2023 to some extent were very quiet because of orthodox policies and geopolitics. But now we are seeing a significant jump in volumes.”

Between 2015 and 2022, volumes from Turkey averaged at $13 billion per annum and were comprised mainly of sovereign funding.

Turkey has had a huge bond yields rally in the last 18 months. Its bond yields are currently rallying at 250 bps. It peaked around 500 bps during October 2023.

“GCC banks’ participation in Turkish bonds is a trend. Erdoğan is obsessed with growth. He is trying to stimulate growth through credit. He has railed against higher interest rates and always says higher rates stir inflation,” a bonds expert said. 

The newfound investor appetite is more than a yields story. Khaled Darwish, MD, Head of Debt Capital Market, CEEMEA Region at HSBC, puts it into perspective: “A robust Turkish bond market has been the trend since the presidential election in the country; the macro risk has subsided in Turkey to a great extent. We have seen a lot of investor confidence in the policies adopted by the government when it comes to tackling inflation, fiscal deficit current account deficit, etc. All of this has restored the confidence of the international market in the government and its bonds.”

Why are GCC banks active in Turkey?

Many GCC banks have subsidiaries in Turkey and they pursue some form of asset and loan growth in the Turkish market.

Darwish said that the banks’ activities were not focused on the bond and sukuk market, and they were able to participate in syndicated loans in the country.

Emirates NBD has a major presence in Turkey through its subsidiary DenizBank.

“Now it’s become a full bank and we can showcase our strength across product suites. We used to primarily work on FI transactions, now we are adding it up with corporates,” Agarwal said.

“We do a lot of loans as well. We are very active on the loans as well in Turkey,” he added.

Kuwait Finance House operates in Turkey through its subsidiary and Qatar National Bank has a presence in Turkey via QNB Finansbank.

Currently 15-25% of the investor composition of Turkish bonds is from the Middle East. It used to be 1-2%. Then you have the UK and the wider European region, which comprises 40-50%.

“Middle Eastern investors have become very active players in the Turkish bond market in the last two years. We have spent a lot of time with regional investors over the last few years to educate them on the Turkey story, including reverse roadshows in Turkey, and the effort is paying dividends now,” Agarwal said.

The government has also been proactive in its efforts to promote Islamic finance by encouraging the issuance of sukuk and other Shariah-compliant instruments to diversify funding sources.

Abdeslam Alaoui, MD, Head of CEEMEA Capital Markets at Deutsche Bank, said: “This is reflected by Turkey’s DCM being one of the third largest among the core Islamic jurisdictions, with a 15% share after Indonesia (24%) and Malaysia (20%) at end-3Q24, and it is one of the three G20 countries active in the sukuk market.”

Key theme: debut corporate issuances

The DCM issuance in Turkey is expected to remain driven by sovereign financing despite projected fiscal consolidation. However, experts say that banks and corporates have huge potential to increase their market presence.  

“While government funding makes up most of the supply, we have seen a major increase in corporate and FI issuers accessing markets. In 2024, FI supply increased 298% YoY and corporate supply increased by 332% YoY,” Alaoui said. 

“The share of supply has greatly changed in 2024 versus 2023, where we started seeing more of a balance between the makeup of government supply from Turkey vs Corp/FI,” he added.

HSBC’s Darwish noted that the corporate sector is bringing a larger share of debut issuers compared to the banking sector, where HSBC already has the majority of banks as existing issuers. “On the corporate side, we had at least 4-5 new debuts last year and will continue to get more debuts this year, including from new sectors that previously relied on bank lending,” Darwish said.

“We have never done corporates in the past with Turkey. In 2023 we did a couple of trades including WE Soda. Last year we did six corporates. This year we have already done bond trades for Turkcell and Limak Energy,” Emirates NBD Capital’s Agarwal said.

WE Soda ($500 million inaugural bond) is one of the world's largest producer of natural soda ash. Turkcell İletişim Hizmetleri A.Ş. is the country’s leading mobile phone operator based in Istanbul. It raised $1 billion via conventional and sustainable bonds in January this year. Both Emirates NBD Capital and HSBC were managers for the issuances.

Limak Energy, which generates, distributes, and supplies vital power across Turkey and internationally, issued a $450 million green bond this year.

Outlook and challenges

The growth of the country’s debt market is expected to remain supported by funding diversification and Islamic finance development goals.

“Challenges to this outlook of the Turkish eurobond market are similar to the factors that will affect emerging markets: geopolitical headline risk, uncertainty in interest rates and global growth outlook due to policy developments, and any potential increase in USD rates rendering the cost of financing via the eurobond market uneconomical for banks and corporates to continue issuing,”  HSBC’s Darwish said.

Turkey experienced notable rating upgrades last year, standing out as the only country to receive two-notch upgrades from all three major credit rating agencies during the year. Both Fitch and S&P currently assign Turkey a BB- rating, three notches below investment grade, with a stable outlook, suggesting a more gradual pace of upgrades going forward. “A rating upgrade coupled with a positive outlook from Moody’s would be a particularly market-positive development,” Deutsche Bank’s Alaoui, said.

Turkey has experienced a significant bond yield rally over the last 18 months. Its bond yields are currently rallying at 250 basis points (bps), having peaked around 500 bps in October 2023. “The problem with Turkey is how much further the rally can go. It’s been a big rally. The country’s rating has doubled. But can it continue to rally further, and by how much more? We need to see that,” the bond expert said.

(Reporting by Seban Scaria seban.scaria@lseg.com; editing by Daniel Luiz)