Some of Turkey’s biggest banks are reluctant to finance President Tayyip Erdogan’s planned Istanbul canal due to environmental concerns and the investment risks hanging over the massive construction project, four senior bankers told Reuters.
Two of the sources said a global sustainability pact that six of Turkey’s top banks have signed was a barrier to funding the Kanal Istanbul, which Erdogan dubbed his “crazy project” when he floated it a decade ago.
The government expects to break ground in June on the canal, which would connect the Black Sea to the north with the Marmara Sea to the south, running 45 km (28 miles) through marshland, farms and towns on the western edge of the city.
Erdogan says the canal would protect the Bosphorus Strait, which runs through the heart of Istanbul, by diverting traffic.
Yet Istanbul’s mayor, engineers and, according to one poll, most citizens, oppose the project on enviromental grounds, saying it would destroy a marine ecosystem and resources that supply almost a third of the city’s fresh water.
Russia, meanwhile, has signalled unease about the project on security grounds as the canal would open a second passage to the Black Sea, which is home to a Russian naval fleet.
“I don’t think we can take part in the funding of Kanal Istanbul,” said a senior banker who requested anonymity. “It may trigger some environmental issues.”
Six Turkish banks, including Garanti Bank (GARAN.IS), Is Bank (ISCTR.IS) and Yapi Kredi (YKBNK.IS), have signed the U.N.-backed Principles for Responsible Banking framework which calls on signatories to avoid harming people and the planet.
“Definitely we don’t want to give a loan to this kind of project because of the environmental issues,” a second senior banker told Reuters, adding that signatory banks must abide by the U.N.-backed sustainability pact.
In 2019, the canal’s price tag was estimated at 75 billion lira – or $13 billion at the time – in a government report.
The reluctance of some Turkish lenders to finance the project makes it more likely state and foreign financing will have to play a bigger role for Erdogan’s dream to come true.
A Finance Ministry spokesman did not immediately respond to a request for comment.
Asked whether Turkish banks would participate in the financing, Erdogan’s spokesman and adviser, Ibrahim Kalin, told Reuters the project would “certainly” attract investors and creditors when tenders are held soon.
Garanti Bank declined to comment. Is Bank and Yapi Kredi did not immediately respond to requests for comment.
Denizbank and state-owned Vakifbank (VAKBN.IS) also declined to comment on the canal’s financing while Akbank (AKBNK.IS) and state lenders Halkbank (HALKB.IS) and Ziraat Bank did not immediately respond to requests for comment.
The cost of the canal would eclipse other mega projects such as Istanbul’s vast new airport that have defined Erdogan’s legacy of credit-driven growth.
Massive foreign short-term debt worth some $150 billion for banks and companies has dogged the lira and laid bare the risks of Turkey’s depleted foreign exchange reserves.
A currency crisis in 2018 delayed the canal project but it is back on the agenda as the…