Turkey Country Report May21 - May, 2021

May 5, 2021

Summary:

“Third Wave of COVID-19” is an undeniable fact now. Official daily cases figures broke consecutive records. Russia restricted flights to and from Turkey until June 1.

When it comes to the latest central bank shake-up, the question is now when the policy rate will be cut as a prelude to a boom in Turkish lira lending.

On the USD/TRY chart, backdoor interventions continue to be seen with the “retail” accounts story. Under observation is how much life Turkey still has left in its near-exhausted FX reserves.

Liquidity on the lira and Borsa Istanbul markets has dried up, making Turkish assets vulnerable to shocks.

The current account deficit remains a danger that observers will keep in view on the dashboard.

Overall portfolio flows to Turkey— including equities, domestic bonds, eurobonds and swaps— turned to a slight positive of $88mn in the week ending April 9, following the $12bn of outflows observed in the previous two weeks, a period that followed the shock firing of the central bank governor by presidential decree on March 19. In the upcoming period, the portfolio flows will stay under scrutiny.

In the fourth week after the sacking of the previous central bank governor, Naci Agbal, the USD/TRY pair appeared stable in the 8.00-8.10 band. However, in the fifth week, the pair hit 8.40s.

External debt rollovers continue undeterred. Akbank (AKBNK) and Ziraat’s syndicated loan renewals in April suggested fresh inflows.

The rollovers of Vakif (VAKBN), Finansbank (QNBFN), Yapi Kredi (YKBNK), Garanti (GARAN), Isbank (ISCTR) and Turk Eximbank are awaited.

The central bank officially has around $90bn of gross FX and gold reserves, but its net FX position remains in deep negative territory at around minus $60bn. The banking industry has an additional $20-30bn.

Pegasus mandated lenders to sell $500mn eurobonds. It will be a test following the latest central bank shake-up.

The lira loans flow is also under close scrutiny. So far this year nothing like the eye-popping levels seen in 2020 has been observed, and local FX and gold demand does not seem to have taken off in the year to date either.

Huge interest in IPOs at Borsa Istanbul was in full spate. However, it seems siphoning money from the stock exchange is reaching its limits.

Q1 financials season at Borsa Istanbul. Deadlines: April 30 for unconsolidated, May 10 for consolidated, May 20 for banks.

Ford Otosan (FROTO) will suspend production at its Golcuk plant from April 19 to June 13 due to the global chip crisis. Production will continue uninterrupted at Ford Otosan’s two other plants.

A potential exclusion of Turkish Airlines from the MSCI Turkey index in May “could drive $117mn of passive outflows.”

Turkey hiked corporate tax rate to 25% for 2021.

Turkey's central bank on April 16 banned the use of cryptocurrencies and crypto assets for payments on purchases of goods and services. Not directly related to the recent legislation but some Turkish crypto exchanges bankrupted and the scandal was growing.

Turkey would between April 26 and May 7 hold tenders for the first 46 solar plants with a combined capacity of 610MW under the scope of the 1000MW YEKA GES-3 round.

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