turkish mortgage market
Apparently, Turkish banks have already started to issue fixed-rate mortgages with maturities that extend to 15 years. Competition is forcing them to offer lower rates and longer maturities. But can any one of them actually manage the risks entailed by holding such long-term, Turkish lira-denominated instruments?
Probably not. The average maturity length of Turkish banks' liabilities has historically been very short. Even if the liquidity of secondary markets improves in near future, these mortgages will still stay in hands which can not properly manage the associated risks. In fact, there is no natural holder of these instruments because there are no Turkish counter parts for the large Western private pension funds and college endowment funds which are financed by long-term minded investors.
Moreover, the spectrum of maturities available in the government and corporate bond markets is not suitable for the management of such long duration risks. (In other words, banks can not use these markets to align their net duration exposures with the duration of their liabilities.)
I guess that these mortgages will be kindly handed to the Turkish government once an unanticipated spike in inflation forces banks to roll-over their liabilities at punishingly higher rates.
Governments have always been the ultimate risk managers.(Check out this book which is currently on my reading list.) Development of "sophisticated" mathematical risk management techniques will not change this fact.
Probably not. The average maturity length of Turkish banks' liabilities has historically been very short. Even if the liquidity of secondary markets improves in near future, these mortgages will still stay in hands which can not properly manage the associated risks. In fact, there is no natural holder of these instruments because there are no Turkish counter parts for the large Western private pension funds and college endowment funds which are financed by long-term minded investors.
Moreover, the spectrum of maturities available in the government and corporate bond markets is not suitable for the management of such long duration risks. (In other words, banks can not use these markets to align their net duration exposures with the duration of their liabilities.)
I guess that these mortgages will be kindly handed to the Turkish government once an unanticipated spike in inflation forces banks to roll-over their liabilities at punishingly higher rates.
Governments have always been the ultimate risk managers.(Check out this book which is currently on my reading list.) Development of "sophisticated" mathematical risk management techniques will not change this fact.
