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38 I Southeast Europe bne October 2017
Economists tangle over risk of a Greek-style collapse in Turkey
and even tragedy from swelling debt drew an immediate critical response from Timothy Ash, senior sovereign strategist at BlueBay Asset Management. “I totally disagree with this. Turkey is miles away from a similar crisis,” he said. “I mean Greece's problems were
in public finance, they had a fixed exchange rate in effect because of the euro membership, whereas Turkey has a cheap and floating currency.”
Turkey, added Ash, has a public sector debt to GDP ratio of below 30%, whereas Greece’s, even before the international financial crisis brought on its government debt crisis, was at more than 100%.
But Robertson pointed out that Greece, Brazil and Russia have all had high credit growth, and crises and recessions as a result. With Turkey’s loan-to-deposit ratio taut, his fear is that Turkish banks will have to borrow more from abroad to make further lending viable, thereby hitching additional credit growth to dependency on international banks.
“When global rates rise and European banks become unwilling to lend to Turkish banks, we may have a situation where Turkish economic growth sees
a total decline of 5% over two to three years,” Robertson warned.
Responsible banks?
The long-term viability of Turkey’s supercharged lending may well come down to whether banks have shown enough diligence and responsibility in utilising the CGF.
Looking at Turkey’s August economic confidence index – it moved up by 2.5%
Will Conroy in Prague
Is Turkey on the road to becoming
a new Greece? The question has divided economists who have delved into what to make of the explosion of credit growth sanctioned by Turkish President Recep Tayyip Erdogan and government ministers.
Turkey has developed something
of an addiction to soft credit this year thanks to the state’s introduction of a TRY250bn ($72.3bn) credit guarantee fund (CGF). Although more than 80% of the CGF has already been used to back- stop bank lending, and the word is that the fund will not be expanded, it has driven a surge in credit expansion for non-financial companies. In turn, that has bolstered economic confidence and helped push up the Istanbul stock mar- ket to record highs.
As of August 11, loans had risen 13% this year to $522bn, according to Tur- key’s banking regulator. What’s more, the ‘jet fuel’ provided by the CGF has pushed the country’s loan-to-deposit ratio to a record high.
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Borrowers who shouldn’t borrow
When it comes to the question of whether Turkey has a ‘Greek future’, Charles Robertson, the London-based global chief economist at Renaissance Capital, has put the cat among the pigeons by telling Bloomberg: “What President Erdogan doesn’t understand is that private sector credit booms without productivity growth always end badly.
What is worrisome in Turkey is that with the government credit programme, the companies that shouldn’t borrow have
“Turkey has developed something of an addiction to soft credit”
started to borrow as well. We’ll see these companies failing to pay debt and the government intervening.”
Robertson’s observations on Turkey’s chances of suffering Greek-style pain
y/y to 106 in August, reaching its highest level since July 2012 – Ash was full of praise for Turkey’s “remarkable turn- around under the circumstances”, add- ing: “I guess we can pinpoint the impact of the credit guarantee scheme, plus also