Istanbul: Turkey’s failed coup is dealing yet another blow to the nation’s banks, which are already under pressure from rising bad debts and a slump in tourism.
Istanbul-based lenders Yapi ve Kredi Bankasi AS and Sekerbank TAS cancelled about $800 million (Dh2.9 billion) of debt sales last week after the attempt to unseat President Recep Tayyip Erdogan and the ensuing political unrest spooked investors. Neither bank forecast when it may return to the credit markets, with Sekerbank saying it would contact fixed-income investors in due course.
The renewed tension in Turkey, which imposed a three-month state of emergency, is hampering access to the funding banks need to cover their short-term debt, while a slumping lira is increasing the risks of lending in foreign currency. The political instability has made a difficult year worse for banks as they contend with a 33 per cent surge in bad loans and soaring bankruptcy filings.
“Funding for Turkish banks could become more expensive, or even more difficult to access, given their large dependence on market funds and their exposure to the foreign-exchange market in a context where the local currency could be under pressure,” Moody’s Investors Service said in a report Tuesday, after placing Turkey under review for a possible downgrade to junk.
The nation’s lenders owe $120 billion to institutions abroad, according to the Bank of International Settlements.
Deputy Prime Minister Mehmet Simsek said on NTV television that where was no need to worry about the economy, investments and markets after the state of emergency was imposed. The country won’t have a problem rolling over its external debt, he said.
The currency dropped to a record low on Wednesday as the government widened its post-coup purge of the country’s institutions, the central bank lowered interest rates and Standard & Poor’s cut Turkey to BB from BB+, with a negative outlook. Turkey’s banking index fell as much as 4 per cent in Istanbul on Thursday, while the benchmark Borsa Istanbul 100 index lost 3.5 per cent by 4:06pm local time. Both gauges were heading for their lowest closing levels since mid-February.
“We may see a rise in the costs of borrowing, but I would not expect difficulty borrowing,” Ates Buldur, an analyst at Credit Suisse Group AG in Istanbul, said Tuesday by phone. “In past crises, Turkish banks have seen only an increase in the cost of funding.”
Before the coup attempt, Turkish banks were confronting deteriorating asset quality in the tourism and energy industries. Bomb blasts from Ankara to Istanbul have deterred visitors, while power companies are struggling to repay loans amassed during an acquisition spree before energy prices slumped.
Bad debts among retailers also jumped 54 per cent in April from a year earlier, while the proportion of soured loans in the construction industry, which accounts for 12 per cent of bank assets, increased to 4.2 per cent from 3.4 per cent.
“Moody’s current assessment already incorporates a high level of political risk, but the impact of the failed coup on Turkey’s policy credibility seems set to be negative, undermining economic activity in the near and in particular medium terms,” Maya Senussi, an analyst at Roubini Global Economics, said in an emailed report.