Page 4 - TURKRptMay20
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1.0 Executive summary
The IMF’s World Uncertainty Index and World Pandemic Uncertainty Index jumped to entirely unforeseen records as of Q1.
“Istanbul death toll hints Turkey is hiding a wider coronavirus calamity”: New York Times
The central bank went for a renewed quantitative easing (QE) phase. The USD/TRY hit 7.01. The Turkish lira (TRY) implied volatility gauges leapt to the highest level in a year. Portfolio outflows strengthened.
Short-term lira swap costs in London spiked to as high as 69%. Banking watchdog BDDK slashed the limit for Turkish banks’ forex swap, forward and option transactions with foreign entities to 1% of equity from 10%, eliminating the opportunity to use the London swap market.
Turkey is “not seeking financial help from the IMF” but a swap line from the FED. “Debt market players have dismissed the viability of Turkey extending its swap line arrangements with the US Federal Reserve.”
Also visible in the currency market is the fact that the Turkish government’s efforts to deploy external financing rumours on possible IMF and Fed agreements as a monetary policy tool are not working.
On April 21, “a senior official” told Reuters that Turkey has delayed the activation of its Russian S-400 missiles, acquired despite the indignation of the US Congress and Nato. When it comes to keeping a grip on the sinking Turkish lira (TRY), it seems that any speculation that will assuage the market will do.
Erdogan still has about $50bn of gross FX reserves at the central bank and around $20bn in additional FX liquidity at banks (about $5bn at home and about $16bn at foreign bank accounts), available to be swapped, and it seems that he is not in a hurry, although everyone is worried.
Erdogan capped dividends at 25% of 2019 profits. The banks had already been “advised” not to distribute dividends from their 2018 and 2019 profits. Isbank tried its luck last year, but banking watchdog BDDK blocked the move.
Akbank, Ziraat Bank and Ulker Biskuvi secured syndicated loan renewal deals amid sudden stop concerns. Vakifbank renewed a China loan. Vakifbank, Yapi Kredi, Garanti, Isbank are in the syndicated loan renewal queue.
Headlines in the Erdogan media questioning whether banks do not have an appetite to extend loans are becoming bolder. Erdogan and Albayrak are also openly criticising private banks. The banking regulator on April 18 set a minimum level for banks’ loan ratios to promote lending. State-controlled lenders have been breaking records in extending new loans.
Garanti BBVA expects Turkish firms will have serious cash requirements starting from April.
“Turkey’s banks muddled through the [Turkish lira] currency crisis two years ago, but they are now in a weaker position to confront the economic and financial market fallout from the coronavirus outbreak.”: Capital Economics.
Turkish banks are to weigh 0% risk for held FX-denominated government paper in their capital adequacy ratios. Previously, the banks were under instruction to weigh 100% risk on the paper since such issues are rated at
4 TURKEY Country Report May 2020 www.intellinews.com
