Page 23 - TURKRptOct19

Turkish banking stocks on the afternoon of September 27. Perhaps it is time for profit realisation in Turkish assets before investors sail to new harbours. Market discussions pondered what was driving the out-of-the-blue interest in Turkish lenders amid the growing government pressure on local banks to lend. Is there some insider news doing the rounds, or is this perhaps a speculative hit-and-run as happened at the beginning of the year before a bad ending prior to the March 31 local elections?
The banking regulator’s decision to force local banks to reclassify TRY46bn of loans as non-performing will raise concerns about the health of the lenders’ loans books, but the major risks in the banking sector stem from large external debts, deposit dollarisation and the growing prevalence of state bank lending, Jason Tuvey of Capital Economics said on September 20, one week before the jump in the Borsa Istanbul banking index, in a research note entitled “Turkey’s banks back in the spotlight”.
Perhaps more than half of the loans that banks have been told to reclassify were made to the construction and energy sectors.
“The reclassification of loans adds to the evidence of the hit to the economy from last year’s currency crisis. It will also add to fears that banks are painting a rosy picture of their loan books. But we estimate that it would take a much larger rise in the NPL ratio to around 15% [up from the estimated official figure of 6.3% after adding the latest TRY46bn] to trigger a need for recapitalisations,” Tuvey also said.
He added: “There are a few other risks in the banking sector that should receive greater attention. The first is that banks’ low levels of liquid FX assets means that they are in a poor position to cope with a fresh jump in wholesale borrowing costs. Second, rising deposit dollarisation exacerbates currency mismatches on banks’ balance sheets and leaves banks vulnerable to a withdrawal of FX deposits. And third, the growing politicisation of lending is likely to result in a misallocation of resources and a sharper rise in non- performing loans further down the line.”
Some market observers have indeed again been seeing signs of recovery in the Turkish economy, but no-one should be convinced that any kind of recovery is at hand before getting through the upcoming winter. The Turks themselves keep buying dollars and scarce jam jar lids as they conserve fruit and vegetables in preparation for hard times.
2.6 Business and consumer confidence surveys
Turkey’s consumer confidence index fell to 55.8 points in September, the
23 TURKEY Country Report October 2019 www.intellinews.com