Mortgage Covered Bonds ("MCBs") are expected to become
a major funding tool for Turkish banks over the next decade. This
is driven by a growing real estate market (and the relatively
infant-stage mortgage market) on the demand side, and the Turkish
banking sector's chronic maturity mismatch problem on the
supply side.1
While the legal framework for MCBs has been available under
Turkish capital markets rules since 2007, recent rule amendments
were made to create a better-functioning market for MCBs. In
this article, we examine the balance that these amendments strike
between investor protection on one hand, and funding
flexibility for issuers on the other hand.2
In general, MCBs are debt instruments secured by a pool of
mortgage loans, which loans are in turn secured by underlying
real estate collateral. In the event of a default on the MCBs, the
investors have a preferential claim on the mortgage loan
collateral. The scope of such claim is defined by
