The fund crisis is locking up non-bank credit, not the banks

Non-bank, not bank

The two links the fund crisis added on 5 and 6 October point the same way. At 17.55 on 5 October, the Central Registry Agency (MKK) announced that Tera Yatırım Bankası had failed to repay a maturing 5 billion lira nominal commercial paper issue. Commercial paper is a short-dated debt note a company sells to qualified investors; this one ran for 182 days. According to Gazete Oksijen and Sözcü, the unpaid total, at 42% annual interest, is about 6.05 billion lira.

Our event record of 6 October rested this default on a single source, a report by Türkiye Today. Reports published by Oksijen and Sözcü on the evening of 5 October confirm the MKK notice with ISIN code TRFTRYBE2614. The maturity and the notice fell on 5 October, not 6 October. A second MKK notice followed at 17.56 the next day. According to Endeks24 and Patronlar Dünyası, Adil Varlık Yönetim failed to pay 500 million lira of principal and a 115.9 million lira coupon. The note had been arranged by Tera Yatırım Menkul Değerler.

On 6 October the market separated the two balance sheets. According to AA, the BIST 100 fell 0.56% to 12,374.26 points that day, while the banking index rose 0.66%. The leasing and factoring index fell 6.67% on the same day, a gap of 7.33 points. The three investment banks handed to the Savings Deposit Insurance Fund (TMSF) on 30 September account for only 0.22% of sector assets, according to the banking regulator BDDK.

The channel that seized is the debt note

According to a KAP compilation by Endeks24, corporate debt listings on Borsa Istanbul averaged 36.2 a week over the first 36 weeks of the year. The count fell to 26 in the week of 14 September, 20 in the week of 21 September and 13 in the week of 28 September. Of the 57.8 billion lira issued between 17 September and 6 October, 67% was lease certificates. These rest on an asset's rental income rather than on interest. Asset-backed securities issuance over the same period was zero.

The Tera group has issued no notes since 17 September. According to the compilation, the bank's five outstanding notes total 17 billion lira. Its KAP filing of 29 July shows one of them, worth 5.3 billion lira, redeeming on 27 January 2027 at 43% simple interest. The same filing still showed JCR Avrasya's A− rating of 30 July 2025 at investment grade. We could find no record of a downgrade before the default, so the claim that the rating was never cut could not be verified.

Investment banks and factoring firms take no deposits, so their funding depends on these notes. The fall in issuance from 36.2 to 13 a week has narrowed that channel. According to AA, CBRT Governor Karahan said on 6 October that money leaving the funds had largely gone back into deposits, and that the lira share of deposits had passed 61%. The 0.66% rise in the banking index and the 6.67% fall in the factoring index on 6 October price this divergence. Funding is flowing to deposit-taking banks, and market-funded non-bank lenders are losing their buyers. Karahan put loan growth at about 25%, down from 35% in February; that squeeze will also reach small firms through factoring.

The front end has brought the cut forward

Investing.com data show the 2-year benchmark yield at 37.01% on 2 October. On 5 October, the day September inflation was published, it fell 1.57% to 36.43%. It closed at 36.42% on 6 October, below the 37% policy rate. An economist at a domestic research house, quoted by Finimize, sees a 100 basis point cut on 22 October as one of the possible options.

There is a measurement conflict of about 3.5 points between two data sources. Bloomberg HT shows the 2-year yield at 39.87% and the 10-year at 35.42% on 7 October. Our 6 October report also used 39.78% and wrote that the yield sat above the policy rate. By our own calculation, a simple yield of 36.42% compounded semi-annually is roughly 39.7%. The two series give the same price by different methods. The correct comparison with the 37% simple policy rate is the simple series, so the 6 October reading of a yield above the policy rate should be corrected.

The lesson from the 7 October follow-up review of our 2 October report applies here. Monthly inflation of 1.84% in September came in below expectations. Yet Türkiye's 5-year CDS held at 255.69 basis points on 2 October and 255.29 on 5 October. The 10-year yield stood at 32.82% on 6 October. An inflation print 0.36 points below consensus did not repair confidence; it only brought forward expectations of a cut. If the front end falls 59 basis points while the risk premium stays at 255, the return on holding lira falls and the risk does not.

The constraint is reserves and capital flows

According to Bloomberg HT, Karahan showed gross reserves at 171 billion dollars on 25 September, 39 billion dollars below the 210 billion dollars of 27 February. According to AA, net reserves excluding swaps were 40 billion dollars on the same day. By a Matriks calculation cited by Dünya, gross reserves fell a further 4 billion dollars in the week of 2 October to 167.2 billion dollars. The loss since 21 August is 21.2 billion dollars.

With loan growth down to 25%, a cut looks like the cheapest tool for easing the squeeze on non-bank finance. The cost lies in the currency channel. A 100 basis point cut on 22 October would lower the lira yield. Any rise in demand for foreign currency would then be met from reserves draining by an average of 3.5 billion dollars a week. According to Bloomberg HT, the 10-article bill drafted to wind down the funds rests on a principle of no public money. It releases the holdings of 455,578 small investors up to 1 million lira, but offers no public support for bank notes held by qualified investors.

What comes next

The first date is 14.30 on 8 October, when the CBRT publishes official reserve, foreign-currency deposit and foreign bond flow data for the week of 2 October. The second indicator is the weekly count of listed corporate debt issues; a figure below 13 would show the funding lock persists. The third is MKK default notices. The first notice from outside the Tera network would show the crisis has moved to a new link. The Monetary Policy Committee decision on 22 October will be built on these three data points.