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Spengler: Turkey’s economic crisis has just begun
The Turkish central bank managed to halt the free-fall of the country’s currency last week with a sharp rise in interest rates. But the move failed to stop the free-fall of Turkey’s equity market and – far more dangerous – the collapse of the credit quality of Turkey’s banks. Only last October, the euro-denominated 10-year bond of Turkey’s largest private lender, Garanti Bank, yielded just 3%. Now it yields more than 7%, and the dollar value of the bond has fallen from over 120 euros to around 80 euros. Turkey’s Istanbul 30 stock market index meanwhile has fallen by 35% in US dollar terms since August 29, 2017. Its most vulnerable lender, Halk Bank, lost 63% of its US dollar value in the same period and now trades at 40% of book value. Turkey’s banks are shut out of world capital markets, and the country is hard put to raise the US$50 billion in new hard currency it needs to finance a current account deficit running at around 6% of GDP. Turkish businesses have about US$300 billion in foreign currency debt, and the cost of servicing it has nearly doubled in local-currency terms due to the lira’s depreciation since 2015. The banks will have trouble rolling over their existing short-term borrowings in hard currency, and trouble collecting loan payments from customers crushed by the collapse of the lira. Like the dead parrot in the Monty Python sketch, Turkey’s major banks have flipped the mortal coil and joined the choir celestial, but the Turkish central bank is there to maintain the illusion of life. The trouble is that the central bank’s resources are running thin: Foreign exchange reserves as of June 1 stood at just US$82 billion, or four months’ worth of imports, vs. nearly US$120 billion at the end of 2014. Posted by: 3dc 2018-06-21 |
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