Οι τουρκικές τράπεζες κοντά στην «κόκκινη ζώνη» της Goldman Sachs μετά την πτώση της λίρας

Turkish banks near Goldman ‘red zone’ after lira tumbles

Mark Bentley

May 14 2019

Turkish banks are in danger of seeing their capital levels deplete after the lira resumed a slump against the dollar.

Just prior to the peak of a currency crisis in August, Goldman Sachs warned investors that declines for the lira threatened to largely erase the excess capital of Turkish banks. The funds are held by the companies in order to keep themselves solvent in a crisis and to cover unexpected losses.

Goldman said at the time that two large Turkish banks were first in the firing line should the lira extend losses against major currencies.

The banks most at risk were Yapı Kredi, a partnership between Italian firm UniCredit and Turkish conglomerate Koç Holding – and Işbank, one of the country’s largest listed lenders, Goldman said.

The capital of both Işbank and Yapı Kredi would erode should the lira fall to 6.3 per dollar, Goldman said. Next in line was Akbank, which would see its excess capital disappear at 6.9 per dollar, it said.

The lira fell 0.1 percent to 6.06 per dollar in Istanbul on Monday, extending losses this year to almost 15 percent. That is the second-worst performance in major emerging markets after the crisis-hit Argentinian peso. The currency lost 28 percent of its value last year.

Investors in Turkey are calling on the government to urgently implement measures to deal with possible capital problems in the banking industry. Tens of billions of dollars of non-performing loans and restructured borrowing are hurting banks’ balance sheets. Last year’s currency crisis and a deep economic contraction has created financial problems for many of the nation’s firms.

Turkish companies have already requested debt restructuring of almost $30 billion, analysts say. Banks have additional problems due to political instability after the election board ordered the rerun of a March 31 vote for mayor of Istanbul, now due to be held on June 23. A spat has also intensified with the United States over Ankara’s purchase of Russian S-400 missiles, which are due to be delivered in July.

As the lira loses value, banks’ exposure increases because the foreign loans they have awarded to Turkish corporates weigh more heavily on their balance sheets.

Turkish corporates’ foreign exchange borrowing exceeded $310 billion at the end of February, equal to almost 40 percent of the country’s GDP, according to central bank data. The same debt totals about $197 billion, when subtracting the banks’ foreign exchange assets, such as cash in dollars.

As the lira depreciates, the troubled loans also increase banks’ risk-weighted assets in local currency terms. And the more the currency falls, the more susceptible companies are to default on their borrowing and the more provisioning banks are required to set aside for foreign-currency denominated non-performing loans (NPLs). Banks try to hedge the risk and offset the impact through income from trading.

The pile of NPLs in Turkey’s banking system has increased since Goldman published last year’s report.

Officially, NPLs have increased to 4.1 percent of total loans from less than 3 percent at the start of last year. But analysts and ratings agencies say the figure could be much higher as banks may be kicking the can down the road and restructuring troubled loans rather than classify them as non-performing.

While political tensions with the United States threaten to escalate ahead of Turkey’s planned delivery of the Russian air defence missiles in July, it is the rerun of the Istanbul election that could provide a more immediate risk to the lira, and hence the banks.

The central bank's ability to defend the lira is disappearing. ABN Amro said in a report earlier this month that the central bank’s net reserves, excluding foreign currency swaps, had fallen to about $14 billion. At the same time, the government is pressuring central bank policymakers and banking executives in general to provide more support to economic growth ahead of the July vote.

In an unprecedented move, the government may draw on as much as 40 billion liras ($6.5 billion) in reserves that the central bank has set aside for extraordinary circumstances, Reuters reported on Monday. The government needs the cash to fund the budget deficit, which has worsened beyond expectations, the news wire said, citing unidentified economy officials.

The government is also seeking to stimulate the economy by supressing interest rates that banks charge on deposits and loans, a highly unorthodox move. Rates on deposits total little more than current inflation of around 19 percent. These meagre returns further encourage Turks to sell the lira and buy foreign currency. Lower loan rates also mean less profit for banks.

Ahead of the elections, Turkey plans to use three state-run banks to extend cheap, long-term lending to manufacturers and exporters, Treasury and Finance Minister Berat Albayrak said at the weekend. In late April, the government injected $3.7 billion into the banks it controls to keep the loan taps flowing to the recession-hit economy

The banks, two of which are overseen by President Recep Tayyip Erdogan through Turkey’s sovereign wealth fund, are already lending to consumers and businesses at below market rates. They have also rushed to help the central bank support the lira, selling more than $4 billion in foreign currency over the past week alone.

Furthermore, the opaque reporting of restructured loans in Turkey’s banking industry – regulations have yet to be brought up to standards in the European Union – means the extent of banks’ capital problems remain something of a mystery.

But should the lira continue to weaken at its current pace, it may be a matter of months, if not weeks, before regulators and the government are forced to intervene and shore up the capital of one or more of the country’s lenders.

Goldman’s warnings about eroding bank capital only focus on the largest Turkish firms. There are many smaller concerns among Turkey’s 52 banks, including those with larger relative exposure to Turkey’s troubled energy and construction sectors, that could be in worse shape.  

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.