TURKEY: from macroeconomic risk to risk in the banking sector

Turkey is fa ced with significant imbalances, first and foremost a large current account deficit, a rapid acceleration in inflation and st ructurally high foreign currencies debt. These weaknesses were brought to light during last summer’s crisis. Since then, the deterioration of the Turkish macroeconomic situation has gathered momentum, becoming a source of risk for the banking sector. Turkish banks are multi-currency exposed institutions operating in a challenged emerging country forming a highly fragmented market. The current economic situation causes a refinancing risk in the medium term more than in the short term, as Turkish banks’ capital structure and liquidity indicators are solid. In the longer term, the banks will have to cope with second-round effects linked to the aftermath of the unorthodox measures adopted by Erdogan. Furthermore, a deterioration in the creditworthiness of the banks’ corporate customers is inevitable, even though the main indicators do not reflect this to any significant extent, and they remain more positive than for other emerging countries. IFRS 9, or rather TFRS 9 (the local equivalent), will result in an increase in expected losses, which sooner or later will have consequences for capital ratios.