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when controls are focussed on restricting residents’ ability to take money out of the country. In Turkey’s case, it’s not clear that officials have the necessary experience or infrastructure in place to prevent leakages. “Meanwhile, resident capital outflows are small and fears that controls could be widened would probably deter foreign investors. More fundamentally, capital controls wouldn’t tackle the problem caused by high inflation, which means that the nominal lira exchange rate needs to fall. A rise in the real effective exchange rate and an erosion of competitiveness would depress exports and encourage imports, causing the current account position to worsen. “Low FX reserves mean that officials wouldn’t be able to mount a credible defence of the lira; higher interest rates would be needed to attract capital inflows to fund a wider external shortfall. This would result in weak economic growth and the lira would eventually face a sharp adjustment anyway.”
Fatwa against sinful dollar buying. May 28 saw a significant threat move on to the horizon thanks to developments in Pakistan, Turkey’s closest rival in the global default league. The Financial Times reported that Pakistani clerics have declared a fatwa against sinful dollar buying. “Next stop Turkey?” Timothy Ash of Bluebay Asset Management responded on Twitter. Turkish clerics—except President Recep Tayyip Erdogan’s old ally turned enemy Fethullah Gulen, where he’s self-exiled in the US strenuously denying he had anything to do with the failed 2016 coup attempt against the Erdogan administration—have on numerous occasions urged Turks to sell their dollars. Erdogan himself, buffing his AKP party’s Islamist-rooted and patriotic credentials, has made similar calls. But Turks’ FX deposits have been expanding at a record rate since the executive president declared war on the dollar. Since last November, the Turkish Treasury, headed by Erdogan’s son-in-law Berat Albayrak, has also been boosting its FX borrowings at home and abroad.
8.0 Financial & capital markets 8.1 Bank sector overview
Turkish banking industry
Jan Feb Mar Apr
Assets (TRY tn) 3.86 3.94 4.14 4.29
Loans (TRY tn) 2.38 2.42 2.52 2.56
Gross NPL (TRY bn) 100 104 106 109
Gross NPL / Total Loans (%) 4.03 4.11 4.04 4.05
Deposits (TRY tn) 2.05 2.10 2.21 2.27
Equity (TRY bn) 426 433 433 440
Net profit (TRY bn) 3.20 6.48 12.4 16.2
Net Interest Income (TRY bn) 10.0 20.5 34.6 48.1
ROA (%) 0.08 0.17 0.31 0.40
ROE (%) 0.77 1.53 2.92 3.82
Bank Capital to Assets (%) 11.0 11.0 10.5 10.3
CAR (core) (%) 14 14 13 13
Source: bddk
61 TURKEY Country Report June 2019 www.intellinews.com