INTERVIEW: “The weekend’s protests were the Russian peoples’, not the opposition’s” – Maxim Reznik
Western Balkans citizens legally resident in EU equal to 14% of region’s population
International Ice Hockey Federation (IIHF) has stripped Belarus of the right to hold the World Championship this year
Alexei Navalny arrested on arrival as he returns home
Russia's NorNickel adopts blockchain for supply chain management
Russia goes ahead with eSIM technology
Russia's retailer X5 Group posts 13% sales growth in 4Q20
National Bank of Ukraine retains a key policy rate at 6%, the outlook of the CPI deteriorates
Western Balkans and Ukraine urged to scrutinise coal subsidies
Oligarchs trying to derail Ukraine’s privatisation programme, warns the head of Ukraine’s State Property Fund
VISEGRAD BLOG: Central Europe's populists need a new strategy for Biden
LONG READ: The oligarch problem
OUTLOOK 2021 Lithuania
EBRD says loan to Estonia’s controversial Porto Franco project was never disbursed
Czech MPs pass protectionist food law in violation of EU rules
M&A in Central and Eastern Europe fell 16% in value in 2020, says CMS report
Hungarian vehicle makers hit by supply chain shortage
COVID-19 and Trump’s indifference helped human rights abusers in 2020
Polish industrial production continues boom in December
OUTLOOK 2021 Poland
OUTLOOK 2021 Slovakia
BRICKS & MORTAR: Rosier future beckons for CEE retailers after year of change and disruption
FDI inflows to CEE down 58% in 1H20 but rebound expected
Pandemic pushes public debt close to 80% of GDP in Albania and Montenegro
BALKAN BLOG: Superstition and resentment surround vaccination plans
Albania needs reforms for e-commerce to thrive, says World Bank
Bosnia's exports in 2020 amounted to BAM10.5bn, trade deficit to BAM6.3bn
Retailers and restaurant owners threaten protests in Bulgaria if reopening is delayed
Bulgaria's Biodit first company to IPO on new BEAM market
Bulgaria’s government considers gradual easing of COVID-related restrictions
Spring lockdown caused spike in online transactions in Croatia
ING: Growth in the Balkans: from zero to hero again?
Labour demand down 28% y/y in Croatia in 2020
Kosovo’s biggest opposition party risks being unable to run in general election
OUTLOOK 2021 Moldova
Storming parliaments: New Europe's greatest hits
World Bank revises projection for Moldova’s 2020 GDP decline to 7.2%
Montenegro’s special prosecution probes finance minister over €750mn Eurobond issue
North Macedonia plans to cut personal income tax in IT sector to zero in 2023
Romania government to pursue “ambitious” timetable for justice reforms
Private finance mobilised by development banks up 9% to $175bn in 2019
OUTLOOK 2021 Romania
BALKAN BLOG: US approach to switch from quick-fix dealmaking to experience and cooperation
Slovenia’s economic sentiment indicator up 2.2 pp m/m in January
Slovenia lost €10bn by neglecting wood industry for decades
OUTLOOK 2021 Slovenia
Slovenia’s opposition files no-confidence motion against Jansa cabinet
D’S Damat franchise deals ‘show Turkey’s hard-pressed mall operators becoming their own tenants’
Turkey’s benchmark rate held as concerns over faltering recovery come to fore
Turkish lira breaches HSBC’s stop-loss, Turkey ETF signalling outflows
CAUCASUS BLOG : What can Biden offer the Caucasus and Stans, all but forgotten about by Trump?
Armenia ‘to extend life of its 1970s Metsamor nuclear power plant after 2026’
OUTLOOK 2021 Armenia
OUTLOOK 2021 Azerbaijan
OUTLOOK 2021 Georgia
Iran’s President Khamenei menaces private citizen Trump
Iran’s technology minister indicted for failing to properly implement internet censorship
No US move to rejoin Iran nuclear deal imminent, say Biden national security nominees
TEHRAN BLOG: Will Biden bet on a quick return to the Iran nuclear deal?
Central Asia vaccination plans underwhelm, but governments look unruffled
Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’
OUTLOOK 2021 Mongolia
Mongolia's PM quits amid protests over treatment of mother with coronavirus and newborn baby
Mongolia's winter dzud set to be one of most extreme on record says Red Cross
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
OUTLOOK 2021 Tajikistan
OUTLOOK 2021 Turkmenistan
Turkmenistan: How the Grinch stole New Year
COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?
Download the pdf version
Turkey’s currency crisis is now as plain as the nose on the finance minister’s face but how long before officials have to acknowledge the fact that the country is also mired in a debt crisis in something like a replay of the 1997 Asian financial crisis?
As the Turkish lira (TRY) plunged another 16% on August 10, beads of sweat must have been breaking out on the brows of anyone unduly exposed to the latest data on Turkey’s foreign currency debts.
bne IntelliNews warned back in October last year that storm clouds were gathering over the Turkish economy and, with an eye on how analysts in Turkey have come to fear for their jobs under strongman President Recep Tayyip Erdogan’s regime should they stick their necks out with ‘too much’ bad economic news, in early April we published a comment piece headlined: “Whisper it—‘Erdonomics’ could be driving Turkey to a meltdown.”
One analyst who certainly wasn’t speaking in hushed tones on August 11 was Win Thin at Brown Brothers Harriman & Co. in New York. He told Bloomberg: “This is a textbook currency crisis that’s morphing into a debt and liquidity crisis due to policy mistakes.”
He added: “The way things are going, markets need to be prepared for a hard landing in the economy, corporate defaults on foreign currency debt, and possible bank failures.”
According to central bank data, Turkey’s non-financial companies’ foreign currency liabilities now exceed their foreign exchange assets by more than $200bn. In the next 12 months alone, private non-financial institutions must repay or roll over $66bn in foreign currency debt. Turkey’s banks, meanwhile, face a figure of $76bn. In all, private companies in Turkey sit on a pile of debt equivalent to about 40% of GDP and in the past year several of the country’s biggest respected conglomerates have requested restructurings of billions of dollars in foreign debt.
The anxieties are mounting fast. An ABN Amro report released on August 9 outlined how investors are worried that Turkey will be unable to finance its annual external financing requirement of around $218bn, a sum which includes funds needed to maintain Turkish companies’ foreign-denominated debt as well as the country’s hefty current account deficit, one of the widest in the world at about 5% of GDP. The base case scenario remained that Turkey would raise sufficient funds, the report added, while noting that “rumours about possible capital controls on forex transfers and IMF assistance have further fuelled stress in the foreign exchange market”.
A big difficulty for Turkey is that its debt-driven economy has since the 2008 financial crisis been much built on short-term foreign funds. Given the ultra-loose monetary policy in the US and Europe and the giant asset purchase schemes stemming from US and eurozone quantitative easing, investors were moved to seek higher returns in Turkey and other emerging markets. But tightening is now under way in the US and other developed economies, while QE is being wound down, meaning Turkey’s search for the funds it requires is becoming very much harder.
Those taking stock of the decline of the lira require a deep breath. Now the world’s worst performing major currency of 2018, it was in the early hours of August 12 down around 40% in the year to date at 6.4300 to the dollar. Staggering as it is to remember, in 2014 a dollar purchased just TRY2. Also sobering is the fact that the modern lira’s biggest ever slump was a 36% drop over roughly six weeks at the height of the financial crisis a decade ago. The current year-to-date descent reached as much as 46% during the rout on August 10 before losses were modestly trimmed.
Market observers contemplating a full-blown debt crisis breaking out in Turkey know the lousy state of the lira has already set off plenty of alarm bells given that over a third of domestic lending in the country is in foreign currencies and the businesses of creditors are clearly largely running off local currency revenues.
The vulnerability of the banking system is palpable. Banking shares slid 6.4% on the Istanbul stock exchange on August 10, taking their decline this year to 37%. Slowing growth, rising bad loans and higher interest rates stand in their path.
“Where to watch”
On August 10, Capital Economics put out a note entitled “Where to watch for signs of stress in Turkey’s banks?”
“Banks’ dollar bonds yields and interbank interest rates are already pointing towards some stress, and these will be key indicators to watch over the coming days and weeks,” wrote William Jackson, chief emerging markets economist at Capital.
At the time Jackson was compiling his note, the TRY was 14% down day on day against the dollar, prompting the economist to say: “For what it’s worth, when the Russian ruble fell by a similar amount in a single day during the crisis in 2014, Russia’s central bank hiked its policy rate by 650bp. It also announced measures to support the banking sector, including providing more foreign currency liquidity, tweaks to accounting rules to help banks deal with the impact of a weaker ruble on their balance sheets, and recapitalisations.
“Investors are clearly concerned that Turkey’s government won’t act (or allow the central bank to act) to shore up the currency, and fears are mounting that this could result in a crisis in Turkey’s banking sector. After all, over a third of domestic lending is in foreign currencies, and banks have substantial short-term external debt.”
Historically, one of the best predictors of stress in the banking sector is to look at whether interbank interest rates spike above the central bank’s interest rate, Jackson added. It was notable, he said, that interbank rates ticked up by 25bp on August 10. “This could be because the fall in asset prices has reduced the collateral available for interbank lending. Another possible explanation is that banks have restricted lending to others due to fears about counterparty risk. We wouldn’t read too much into a relatively small move that occurred in just one day, but if this continued it might be an alarming sign that the interbank market is freezing up,” Jackson noted.
Looking at early signs of stress in the banks’ dollar bond yields, he concluded: “One possibility is that investors have become concerned that US sanctions could expand to include the banking sector, adding a premium to the yield on Turkish banks’ bonds. However, it also seems plausible that investors are worried that the fall in the lira will make it more difficult for banks to repay their large external debts. If banks’ external borrowing costs continue to rise, a severe credit crunch will become all the more likely.”
Erdogan unleashes another volley of hot rhetoric
Time to hand over to the technocrats and the central bank for a whacking great interest rate hike you might think. But such hopes looked forlorn in the wake of the populist Erdogan’s latest volley of hot rhetoric unleashed at actors in the West whom the president accuses of having brought Turkey to the brink.
“We are aware that the issue is not the dollar, euro, gold... these are the bullets, cannon balls, missiles of the war started against us,” said Erdogan. “We have taken and will continue to take necessary measures to respond. But what’s important is to break the hands that fire these weapons.”
here to continue reading this article
and 5 more for free or purchase
12 months full website access including
the bne Magazine for just $250/year.
Register to read the bne monthly magazine for
Password could contain only
and have 8-20 symbols length.
Please complete your registration by confirming your
A confirmation email has been sent to the email
address you provided.
can't be empty.
No user with
this email address.
Access recovery request has expired, or you are using
the wrong recovery token. Please, try again.
Access recover request has expired.
Please, try again.
To continue viewing our content you need to complete
the registration process.
Please look for an email that was sent to
with the subject line
"Confirmation bne IntelliNews access". This email will have
instructions on how to complete registration
process. Please check in your "Junk" folder in
case this communication was misdirected in your
If you have any questions please contact us at email@example.com
Sorry, but you have used all your free articles fro
this month for bne IntelliNews. Subscribe
to continue reading for only $119 per year.
Your subscription includes:
For the meantime we are also offering a free
digital weekly newspaper to subscribers to
the online package.
Click here for more subscription options,
including to the print version of our
flagship monthly magazine:
Take a trial to our premium daily news
service aimed at professional investors that
covers the 30 countries of emerging
For any other enquiries about our
products or corporate discounts please
contact us at
If you no longer wish to receive
Magazine annual print
Website & Archive
Combined package: web
access & magazine print
Take a trial to our premium daily news service
aimed at professional investors that
covers the 30 countries of emerging Europe: