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Turkey still offered positive real yields. Ash has now reiterated his regular call for an initial lira devaluation and a subsequent bold rate hike.
While some of the ugliest trolls of the AKP engaged in Twitter fights over the lira, Robin Brooks of the Institute of International Finance (IIF), known to Turkish Twitter users as “5.50 Robin”, got into a row last week with Alvaro Ortiz of Spanish lender BBVA, which controls one of Turkey’s largest lenders, Garanti BBVA.
“We kept our Turkish Lira fair value constant at $/TRY 5.50 for all of 2018 and 2019. But this year we have changed it twice, raising it to 6.30 on Apr. 6 and again to 7.50 on Jun. 29, given that a big credit stimulus is widening the current account deficit, a risk factor for Lira,” Brooks wrote on Twitter on July 28.
There have been signs in recent days that the Turkish government is taking steps to limit the latest loan growth madness prompted by its fixation on using cheap credit to ward off an economic slump.
Ibrahim Kahveci of local daily Karar wrote on July 27 that the signs were caused by FX needs. In the coming days, we will see whether the government will manage to save the lira from going over the edge of the abyss. Or is it already too late?
In May, when the USD/TRY hit the 7.20s and its latest all-time low, Brooks wrote on Twitter: “Too much negativity on Turkish Lira. Below 7.00 there's the ‘managed float’ talk. Above 7.00 there's now focus on [the coronavirus pandemic-triggered collapse in] summer tourism. Big picture: (i) Lira is a free float, just look at it since 2018; (ii) exchange rates are forward-looking, so summer tourism should be in the price.”
Also significant is that AKP trolls have been engaging in verbal brawls on TV over their unending relations with the cleric Fethullah Gulen, Erdogan’s arch ally-turned-enemy, self-exiled in Pennsylvania.
Whenever it comes, the collapse of the AKP will without doubt be a really ugly affair. It will not just collapse on the heads of the Turks. It will also impact the region.
The lira very briefly broke through the 7-to-the-dollar barrier on July 29, trading at 7.002, and skidded to a historical low of 8.251 against the euro.
8.0 Financial & capital markets 8.1 Bank sector overview
8.1.1 Earnings
Some Turkish banks are reportedly concerned that a “bad bank” plan to house billions of dollars of non-performing loans (NPLs) could require them to book large losses, and they want foreign stakeholders involved.
Reuters on July 2 reported seven industry sources as outlining the scenario.
Last week, Ernst & Young presented its blueprint for creating an asset management company (AMC) to Turkish bankers, apparently prompting a mixed reaction.
“It’s early right now to talk about it, but we are not willing to be a part of this
46 TURKEY Country Report August 2020 www.intellinews.com
