Page 64 - TURKRptJul19

downgrading of Turkish corporates’ ratings, has come under further criticism from those who see it as a political move linked to Erdogan’s escalated row with the US over Ankara’s planned purchase of Russian S-400 missile defence systems. The criticism is not only coming from the Turkish government and locals, foreign observers have also expressed scepticism about the legitimacy of the move. Taking another tack, Global Capital on June 20 questioned the surprise downgrade with an op-ed entitled “Moody’s gives Turkey’s lenders a scapegoat”. It noted: “[..P]erhaps Moody’s fulfils another useful function. Lenders can raise margins without compromising their longstanding relationships with Turkey’s banks—after all, they have the ratings agencies to blame.”
In any case, Global Capital expects a 25bp rise in Turkish lenders’ syndicated loan renewal costs in the autumn season that will be launched in September by private lender Akbank, as per usual.
On July 1, Moody’s Investor Services kept its negative tone on Turkey with a report suggesting that the outlook for Turkey's banking system remains negative, reflecting banks' funding vulnerabilities and difficult operating conditions that will put downward pressure on their financial strength over the next 12 to 18 months. Moody’s expects Turkey's weakening economy will cause banks' profitability to deteriorate, driven by higher loan-loss provisions and slower loan growth. The downside risk of more extreme policy measures in a stressed scenario, such as restricted access to foreign currency for depositors, has increased, the rating agency also said, adding: “The banks' funding is vulnerable, as it depends on short-term wholesale funding in foreign currency, with $64bn maturing in 12 months. Deposits in foreign currencies have risen to 54% of total deposits ($209bn), driven by local currency depreciation. Government policy has been unpredictable and the downside risk of more extreme policy measures in a stressed scenario, such as restricted access to foreign currency for depositors, has increased. Liquid assets ($100bn) and central bank foreign currency reserves ($27bn) are insufficient to withstand severe funding stress.” Moody's expects financial difficulties at some large corporate borrowers and problems in the construction and energy sectors in the current recessionary environment. This will lead to a deterioration of the banks' asset quality, driven by higher loan-loss provisions and slower loan growth. Banks are the key driver of economic growth in Turkey, but the capacity of the government to provide support in a crisis is limited, as indicated by the B1 sovereign debt rating, which has a negative outlook, the rating agency also noted.
8.5 Fixed income
Non-residents' holdings of equity and government domestic debt securities ($ mn)
(Market Value)
2017
2018
Jan
Feb
Mar
Apr
May
As of June 21
So far 2019
STOCK
Equity
51,984
29,563
35,260
34,684
29,339
27,995
26,382
28,554
28,554
GDDS
30,942
18,325
19,246
18,095
14,514
13,269
12,811
14,375
14,375
Repo
2,403
314
340
330
309
297
322
346
346
Private Sector
959
612
591
501
543
489
473
491
491
NET TRANSACTIONS (Adjusted for Foreign Exchange and Market Price Effects)
Equity
3,191
-904
1,335
59
-517
-21
-196
163
824
GDDS
7,278
-906
-329
-377
-868
-489
-540
142
-2,462
Repo
271
-1,391
15
-4
15
5
23.9
-8
46
64 TURKEY Country Report July 2019 www.intellinews.com