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policy, and a renewed depreciation in the currency. However, public lenders have so far managed to defend the local currency at the cost of burning huge amounts of central bank reserves while the equity market is under an unofficial suspension with the short-selling ban introduced on the most liquid banking stocks. The squeeze on lira liquidity in London is introduced whenever required.
The domestic borrowing market remains almost idle since a series of huge mistakes starting from last year while the external borrowing channels are also not promising. The year of 2020 could be a troubling year for government financing. Erdogan has so far had the power to order local private lenders and pension funds to finance the government and the central bank reserves but a crowding-out next year already seems inevitable. The budget deficit is booming, with the borrowing plan for 2020 up 50% y/y. It is raining tax and price hikes and there are fresh plans to transfer more money from the central bank. A decline in the central bank’s valuation account has prompted worries that the national lender may transfer funds to the government. Meanwhile, official inflation and interest rates have nosedived, while the lira remains stable.
Turkey’s sovereign wealth fund was in action, mandating Ernst & Young to evaluate horse racing betting strategies and it was announced that Vakifbank shares are to be transferred to the Treasury.
As a solution to the NPLs problem, the banking watchdog informed local lenders they are to delete toughest-to-collect Group 5 NPLs from their balance sheets. The move against Group 5s makes it even more challenging to track the real situation with NPLs in Turkey. The official data was already pretty much useless given debt restructurings and the deployed classification methodologies. The BDDK regulator has raised eyebrows many times in the past. It brought in some changes in capital adequacy ratio calculations after Moody’s Investors Service and Fitch Ratings cut Turkey’s credit ratings to junk following the failed July 2016 coup. Since 2016, banks have carried the Turkish economy. But the combined net income of the Turkish banking sector declined 10% y/y in January-October.
Syndicated loan renewals for banks are progressing undeterred but at low renewal rates. Banks are still net debt buyers while the real sector weighs on short-term trade credits.
The Turkish Treasury sold $2.5bn in eurobonds and redeemed $1.5bn. Mersin Port sold $600mn in eurobonds. No news has followed word that Turkish Airlines mandated lenders for eurobond/trust certificate issues. Istanbul municipality is seeking Treasury approval for $500mn in eurobonds. Vakifbank and Yapi Kredi are getting ready to sell mortgage-backed papers abroad (See Section 5.4).
The Q3 financials season ended for Borsa Istanbul-listed corporates, but as anticipated there were no promising performances (See Section 4.3.2). Top retailer BIM will pay additional dividends (See Section 8.3.2). There was some limited inflows into Borsa Istanbul to push a synthetic rise. “There is more room to go” in rising Turkish bank share prices “but that will likely only materialise in early 2020”, VTB Capital analyst Akin Tuzun wrote in a December 4 note. The Russian investment bank advised last month that they were expecting a 10% rise in Turkish banks in November and they delivered 9.6% on strong earnings.
Yapi Kredi Bankasi (YKB), owned by Koc Holding and Italy’s UniCredit, is to have a new shareholding structure in which UniCredit’s stake will fall to below 32%.
Electricity producer Akenerji—a JV between Czech energy utility CEZ and
5 TURKEY Country Report December 2019 www.intellinews.com
