Page 89 - TURKRptMay19

it added.
Banks again net debt payers. Banks were net debt payers through loans once again, as they redeemed a net USD2.2bn in February, with the rollover ratio for long-term loans remaining at a mere 31%, Seker said. It added: “Banks’ total net debt (loan) redemption since May reached USD17.0bn, with an implied rollover ratio of 66% during the period (the rollover ratio since August is actually lower at 53%). The corporate sector managed an 84% rollover ratio in new loans, which led to a mere USD0.16bn capital outflow (including short term loans). Nevertheless, corporates managed to keep the rollover ratio (for long-term loans) at slightly above 100% between August and January, leading to a mere USD78m inflow, but this points to a significant worsening compared to the USD5.8bn inflow (150% rollover ratio) registered between January and July, last year. “Recall that the corporate and banking sectors together reduced debt by USD14.5bn over the past 12 months, compared to the USD13.9bn net borrowing of 2017. This deleveraging process also helps explain the ongoing growth slowdown. The constraints in external funding also make a Vshaped recovery less likely going forward, in our view.” Turkey’s current account deficit is likely to continue shrinking over the next few months, dipping at $2-3bn or possibly reaching a small surplus by July 2019, Seker forecast, adding: “The downward trend is likely to reverse in 2H19, but would only bring end-2019 C/A deficit to about USD11-12bn (1.8% of GDP) or probably slightly higher. This downward trend in the C/A deficit might also support the case for stabilization in TRY, and indirectly help inflation.” Turkey’s 12-month rolling primary budget deficit according to the IMF’s definition reached TRY87bn in February, equivalent to around 2.3% of GDP and the worst reading in history, Seker also noted, adding that the weakness in consumption tax collection persisted in February.
Slowing economy complicates budget targeting. Restraining the budget deficit would not be an easy task in a slowing economy, as budgetary improvement is highly dependent on tax revenues, rather than on a constraint in expenditures, with there actually being very little discretion on the spending side, the brokerage also said. The government pledged TRY76bn worth of budgetary savings in 2019. Nevertheless, Seker believed that this may be hard to implement amid a slowing economy. For example, the government’s allocation for total investments in 2019 is just TRY 64bn vs. the TRY105bn realisation in 2018, implying close to a 50% reduction in real terms. Seker saw this as almost impossible to materialize, as this alone might wipe out a significant percentage from GDP growth, probably 1.0- 1.5%. Indicating Seker might be on the right track with its argument, the government allocated TRY15bn for investments in January alone, which is almost a quarter of the full-year allocation. The brokerage concluded: “A projected 5% YoY improvement in tax revenues (in real terms) for 2019 may also be hard to achieve in a slowing or contracting economy. Therefore, the government may require a significant amount of additional non-tax revenue sources to meet the 1.8% budget deficit target in 2019.”
8.3.2 Dividend dynamics
Turkish lenders’ dividend and bonus payments would be limited —banking watchdog BDDK has already been active in that regard and it looks like it may have the same mission into next year—as the economy rebalanced, and some problem loans would be transferred to off balance sheet funds of local banks and international investors, according to Albayrak’s presentation delivered on April 10.
State-owned lenders Vakifbank and Halkbank will not distribute dividends from their 2018 profits , the lenders said on April 8 in separate bourse filings.
89 TURKEY Country Report May 2019 www.intellinews.com