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Turkish banks are likely to suffer over the next few years as the combination of an economic slowdown and higher interest rates will force more borrowers to the wall. That’s the conclusion of two reports issued this week by rating agencies Moody’s and Standard and Poor’s.

Moody’s reckons it’s the banks who’ve lent to small and medium businesses who are the most exposed, while S&P sees consumer debt as the problem. Continue reading »

Food and beverage vendors and technology firms are most vulnerable among those Turkish companies with hard currency debts to the lira’s sharp depreciation, according to a survey of 10 corporations by Fitch, the credit rating agency.

Assuming a 30 per cent depreciation in the lira against a basket of currencies since the end of 2012, Fitch examines which companies have the highest proportion of their earnings in lira versus debts in hard currency – a transgression known as “original sin”.

 Continue reading »

Turkish corporates have come late to the eurobond market, with $4.1bn in foreign currency bonds outstanding last September, up from just $400m at the end of 2012, according to the Bank for International Settlements.

Should investors be worried? After all, the surge in issuance has come during a period of turmoil for the lira and other EM currencies, and issuers risk being found guilty of original sinContinue reading »

Turkey’s banks are having a bad time. The sector’s 16-bank MSCI index fell by as much as 15 per cent during the past month, hitting a price-to-book ratio of less than 1 for the first time in five years.

Perhaps that isn’t surprising given that higher interest rates, slower growth and a cheaper lira are likely to persist, while credit expansion won’t sustain its rapid pace of the past decade. In 2013 alone the volume of loans rose by just shy of 30 per cent and the ratio of banks’ loans to deposits currently stands at 107.7 per cent, after breaching the 100 per cent level in 2013 for the first time in at least a decade.

So, how well prepared is the financial system for the end of a world of easy money and abundant capital inflows?

 Continue reading »

One of the less remarked-on pieces of news out of Turkey on Wednesday was a statement from the central bank that it has ditched its “additional monetary tightening” facility, under which its overnight interest rate used to be bumped up a bit from time to time in a not very transparent manner.

In so doing, the CBRT has removed one more out of several unorthodox aspects of its monetary policy that have so bothered investors. But how complete is the bank’s conversion to the straight and narrow? Continue reading »

In a moment of drama at midnight on Tuesday, Turkey’s central bank performed a volte face, increasing interest rates across the board where it had previously been reluctant to raise them. It more than doubled one key rate.

It was a striking move, given the political and financial backdrop: prime minister Recep Tayyip Erdogan has long made clear his opposition to high interest rates, while investors had become worried about Turkey and other emerging markets, writes Daniel Dombey in Istanbul.

 Continue reading »

After hitting all-time lows against the dollar, the lira has staged a big comeback. Here’s the essential reading: Continue reading »

Is Turkey about to embrace orthodoxy? The timing of Tuesday’s eagerly-awaited midnight announcement from the central bank’s monetary policy committee suggests the answer may be, at best, “not entirely”. Indeed, some analysts see the choice of midnight as an indication that the bank is preparing to bring in capital controls, in which case the answer would be “not on your life” – although Erdem Basci, central bank governor, has explicitly ruled that out.

As Timothy Ash at Standard Bank put it, what investors want is “plain vanilla central banking, with no further use of smoke and mirrors”. But will they get it? Continue reading »

It’s been a difficult week for the Turkish lira, which hit multiple record lows against the US dollar. It closed on Friday down 1.39 per cent on the day at 2.3242 to the dollar. Turkey’s central bank mounted a spirited defence of the currency on Thursday but only succeeded burning through around $3bn of its $40bn reserves.

The bank does, however, have other tools. On Tuesday, it said that despite keeping its three main interest rates unchanged it would, through what it refers to as additional monetary tightening, occasionally raise the overnight rate from 7.75 per cent to 9 per cent. But what exactly is additional monetary tightening and how does it work? Continue reading »

So, Turkey’s central bank has passed up a chance to affirm its independence and, apparently, bowed to political pressure by keeping its policy interest rates unchanged.

Or has it? In a statement on its website, the bank said that while its three main interest rates would remain unchanged, one of them, the overnight lending rate, would be raised from the current 7.75 per cent to 9 per cent on “exceptional tightening days”. Continue reading »

The Turkish lira hit the latest in a series of all-time lows against the dollar on Monday when it fell to TL2.2502, on a day when the country’s new economy minister said a further slide would not be a problem and called on the central bank not to increase interest rates.

An interest rate rise might in normal circumstances be expected at the bank’s monetary policy committee meeting on Tuesday.

But this is Turkey. Continue reading »

If the US tapering its QE programme, or the widespread protests of mid-2013 weren’t enough to give investors an excuse to sell out of Turkey, what of the current political scandal? Surely the entrenched crisis provoked by the confrontation between Prime Minister Recep Tayyip Erdogan and the police, prosecutors and judges has undermined confidence in the country?

Perhaps not. Analysts at Nomura have looked at the numbers, and it seems investors are largely staying put. Continue reading »

By Timothy Ash of Standard Bank

Vladimir Putin has been acclaimed by many as the man of 2013. He outmanoeuvred the west first on Syria and then on Ukraine. He has tried to show a softer side with recent high-profile pardons, from Khodorkovsky to Pussy Riot and Greenpeace campaigners. Now momentum is building up to the Sochi Winter Olympics, which will be presented as a show case for Russia and the Putin regime.

It will be interesting to see if he remains at his peak in 2014, post-Sochi. Continue reading »

Turkey appears ready to allow exports of crude oil from Iraq’s semi autonomous Kurdistan region following the conclusion of tests on an unused section of the Kirkuk-Ceyhan pipeline, which leads from the Turkish-Iraqi border to its oil export terminal at Ceyhan on the East Mediterranean coast. Continue reading »