Turkey’s private sector foreign debt jumps 2% m/m in May

Turkey’s private sector foreign debt jumps 2% m/m in May
Turkey’s private sector long-term foreign debt now stands at $209bn as of end-May from $205bn at end-April / bne IntelliNews
By bne IntelliNews July 17, 2017

Turkey’s private sector long-term foreign debt rose 1.94% m/m to stand at $209bn as of end-May from $205bn at end-Aprilthe central bank said on July 17. At end-2016, the level of debt had risen by 4% y/y to $202.7bn.

Turkey is heavily dependent on external loans to finance its large current account deficit. Debt-financed consumption is regarded as one of the main drivers in the remarkable economic growth experienced by the country in much of the past decade. However, when it comes to the economic horizon, political concerns are placing sustained pressure on the outlook, creating a more challenging environment for the country’s private firms.

Turkey’s corporate sector, especially when it comes to tourism enterprises, may experience difficulties in meeting liabilities. 

Non-financial private companies’ long-term debt stock also rose by 1.48% m/m to $99.7bn at the end of May while private banks’ debt rose by a stronger 2.58% m/m to $91.6bn. Private banks’ loan debt rose 0.12% m/m to $63.2bn in May while their bonds' debt rose 8.53% m/m to $28.35bn.

Non-financial private firms’ long-term debt expanded by 8% y/y to stand at $96.5bn at the end of 2016 while private banks’ debt rose 2% y/y to $87.6bn. Private lenders’ loan debt contracted 0.75% to $63.3bn at end-2016 and their bonds debt 9.29% y/y to $24.4bn.

Data from the central bank also showed that the private sector's short-term debt declined by 1.1% m/m to $15.4bn as of end-May. The short-term debt stock declined by 30% y/y to $14.3bn at end-2016.

Turkey is planning new measures to tackle the potential risk generated by foreign currency debt held by private companies, Bloomberg sources said on June 19. Plans include requiring non-financial companies with more than $15mn in foreign-currency debt to hedge their risk, while companies with smaller holdings would also face limits on how much foreign exchange credit they could receive from banks, the sources reportedly said. The government may also introduce higher provisioning for commercial banks’ FX lending to these companies, according to the news service.

“The outlook is clouded by heightened political uncertainty, security concerns, and the rising burden of foreign-exchange-denominated debt caused by the lira depreciation,” the IMF warned Turkey in April.

Moody’s Investors Service on March 17 lowered Turkey’s rating outlook to negative from stable, citing “the continuing erosion of the country’s institutional strength, its weaker growth outlook, heightened pressure on public and external accounts and the increased risk of a credit shock”.

The rating agency also noted that “weaker growth is negatively impacting Turkey's key credit anchor – its healthy public finances and low government debt”.

Turkey’s gross external debt stock rose by 1.8% q/q and 0.6% y/y to $412bn by end-March. The country’s short-term external debt stock rose by 3% m/m to $105.3bn at end-Aprilfrom $102.2bn at end-March. The net short FX position of the non-financial firms declined by 0.52% m/m to $197.7bn at end-April from $198.7bn at end-March.

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