Page 4 - TURKRptSep20
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1.0 Executive summary
A Turkish lawyer died after a 238-day hunger strike to demand a fair trial.
Vestel dismissed reports of widespread COVID-19 cases at its plant. Armoured vehicle maker BMC has ceased operations at its plant due to the outbreak among workers.
US action against the financier was said to show jihadists’ cash flow continues from Turkey.
USD/TRY latest record: 7.42 on August 26.Turkey’s money markets started to malfunction. There were multiple quotes on the USD/TRY pair. Physical FX and gold are falling into black market. Banks started charging fees on FX cash withdrawals. Then, they scrapped fees reasoning that “the practice has hurt confidence in the health of the financial system”.
Fitch revised Turkey’s junk rating outlook to ‘Negative’.
The betting is open on the timing of Turkey’s ultimate collapse. The palace administration in Ankara is worried about “a ‘perfect storm’ in political and economic turbulence” in autumn.
“Erdogan’s gamble on cheap money and propping up the currency has failed.” Comparing Turkey with Lebanon is a new fashion.
Overall interventions in the Turkish lira market since the beginning of 2019 is estimated at over $105bn.
Erdogan is yet to send any signal that he will accept a rate hike. Changing the funding composition or employing non-interest tools are approaches that have proven unsuccessful in previous attempts.
Given that there is no known option for a rate hike, and combining that scenario with the melting reserves and the unsettled currency, the expectations and rumours circulating right now suggest that stricter capital controls in Turkey are seen as almost inevitable as things stand.
Given the backdoor tightening strategy, the central bank’s weighted average cost of funding, which excludes USD- TRY swaps with local banks, reached 9.61% as of August 24 from 7.34% as of July 16. In the USD/TRY swap auction held on August 17, the implied lira rate reached 10.95% from 8.23% in the auction held on August 5.
Global finance is questioning whether Erdogan can sell eurobonds. Turkish bank and corporate bonds are trading at distressed levels.
On July 29, the baking watchdog BDDK fined HSBC Turkey TRY180mn—40% of its TRY470mn net profit in 2019—and Albaraka Turk TRY21mn for failing to comply with the “asset ratio” regulation, which came into effect on May 1. Sekerbank managed to meet the ratio requirement by a narrow margin.
On August 10, the BDDK lowered the asset ratio after lira depreciated.
“The next wave of debt restructurings was expected to hit at the end of 2020 or
beginning of 2021, but it will be earlier now”.
Outflows from Borsa Istanbul continue. The Q2 financials season at Borsa Istanbul came under the shadow of the latest critical descent in the lira while COVID-19 was a plus this time.
4 TURKEY Country Report September 2020 www.intellinews.com
