Page 62 - TURKRptMay19

All of Turkey’s large infrastructure projects, including Istanbul’s $11bn new mega airport, are financed through foreign-currency loans taken out mainly with local lenders. Their ability to repay is hindered because most of their income is in lira.
Fitch Ratings said that the lira’s depreciation inflates foreign-currency risk-weighted assets of banks and dents their capital ratios. NPLs could worsen significantly given the weaker economic outlook, higher interest rates and pressure on foreign-currency borrowers, added Fitch.
‘Lira crisis factors still in place’. In an April 6 note, IHS Markit said that many of the factors that caused the lira crisis last summer remain firmly in place in 2019. It specified the “degradation of institutional integrity, particularly relating to the central bank; high short-term external obligations in the private sector; low net reserves; and a paucity of portfolio capital investment inflows”.
IHS Markit added: “Renewed market instability will intensify fixed investment losses, with higher inflation and potentially higher interest rates further undermining household consumption. Turkish economic losses are now likely to be deeper than previously anticipated, and extend into the second half of 2019. Any recovery in 2020 will likely be muted. Deeper economic losses will exacerbate significant vulnerabilities in the banking sector.
“As of January 2019, Turkish banks had USD57 billion of short-term debt outstanding and non-financial corporations had USD68.2 billion of debt maturing within one year, leaving both sectors vulnerable to shifts in investor sentiment.Additionally, with foreign-currency loans accounting for 40% of bank credit provision, renewed lira losses will add to already rising asset-quality pressure. Loans classified as non-performing and loans ‘under close monitoring’ currently stand at more than 12% of total loans and will keep rising through 2020, at least. Fresh punitive measures by the US, a loss of capital inflows, or a prolonged fall of the lira could trigger systemic banking dislocations.”
62 TURKEY Country Report May 2019 www.intellinews.com