As Lira Swings, Some Foreign Banks Review or Scale Back Turkey Exposure

A money changer holds Turkish lira and US dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021. (Reuters)
A money changer holds Turkish lira and US dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021. (Reuters)
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As Lira Swings, Some Foreign Banks Review or Scale Back Turkey Exposure

A money changer holds Turkish lira and US dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021. (Reuters)
A money changer holds Turkish lira and US dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021. (Reuters)

Some foreign banks are reviewing limits for dollar lending to Turkish businesses amid the lira's wild fluctuations, two banking sources said, in a move that could drive up borrowing costs if the foreign lenders cut back.

At least two foreign banks have also withdrawn from cash trading the lira, separate sources at those banks said, potentially limiting local firms' access to foreign currency and hindering foreign investment.

The lira has been on a roller-coaster ride since September when Turkish President Recep Tayyip Erdogan pushed for interest rate cuts.

On Monday, it plunged 10% to 18.4 to the US dollar, taking its losses for the year to almost 60%, before whipsawing back to 12 after Erdogan unveiled a plan he said would guarantee local currency deposits against market fluctuations.

Turkish banks are regular international borrowers, and foreign lenders' reluctance to expose themselves to large currency gyrations could make it more expensive and more difficult for them to refinance their debts.

Fitch estimates foreign liabilities of Turkish lenders - mostly short-dated and held by large international banks - were equivalent to 22% of their funding at the end of June.

Total external debt at Turkish banks amounted to $138 billion at the end of the third quarter, with $83 billion due within 12 months, Fitch estimates.

Turkish banks rolled over their one-year foreign currency loans in October before the lira's latest plunge, but could be impacted in the next roll-over period in the first quarter, a regional banker said.

"We had a few banks that came to us and said they will review Turkish limits for the next roll-over period based on the kind of update they get on the economy," the banker said.

A second banking source said their bank had recently further limited short-term trade business with Turkey after cutting exposure on term loans.

"Every single deal needs to be approved by the risk department," the source said.

The sources declined to be named due to the sensitivity of the matter.

One senior Turkish banker said on Tuesday he was not aware of foreign counterparts reviewing or curbing lending.

Turkish banks have a long record of being able to access foreign funding despite multiple periods of stress, said Lindsey Liddell, head of Turkish bank ratings at Fitch.

Syndicated loan rollovers in the fourth quarter were at a lower cost than in the first half of 2021, with roll-over rates largely remaining above 100%, despite the market volatility, she said.

"Nevertheless, foreign currency liquidity could come under pressure from a prolonged market closure or significant foreign currency deposit outflows," Liddell said.

"Banks' access to foreign currency liquidity has also become more reliant on the central bank and could be uncertain at times of market stress."

The first banker said some Turkish companies had also made requests to relax conditions on their loan agreements due to the market turbulence, without providing details.

Caution

Erdogan's push for 500 basis points of interest rate cuts since September has set off Turkey's worst currency crisis in two decades, with the lira crashing nearly 40% in just the five weeks to last Friday.

Bid-ask spreads on the lira, a gauge of how easy it is to trade the currency, have widened sharply in recent days, with quotes nearing their widest in about a month.

In a further sign of waning investor confidence, implied volatility on the lira - or expected price swings - jumped to the highest on record as the lira fluctuated wildly.

One large European bank and an Asian bank said they had stopped cash trading in the lira and were extremely cautious about offering liquidity for forwards contracts, citing market volatility and policy risks. They also declined to be named due to the sensitivity of the issue.

JPMorgan has pulled back from offering algorithmic trading facilities in the lira, according to a notice seen by Reuters late last week when the market crashed. The US bank did not immediately respond to a request for comment.

John Marley, chief executive of consultancy forexxtra, said some banks were likely to switch to a system where they will only execute trades if they have another client transaction to offset it, meaning they take on no direct risk themselves.

"The last thing in the world you need is a small position in the lira blowing a hole in your annual trading statement," he said.

Still, for Sergey Dergachev, a senior portfolio manager at Union Investment, the currency crisis is unlikely to trigger defaults on international bonds by Turkish corporates, partly because they refinanced 2022 maturities earlier this year.

"Most issuers are also exporters and benefit operationally from lower lira levels, and severe credit deterioration ... is not a likely scenario I envisage for the Turkish corporate Eurobond issuers, and stay invested in them," he said.



Saudi Arabia Boosts Strategic Partnership with Indonesia in Mining, Food, Pharmaceutical Industries

Saudi Arabia Boosts Strategic Partnership with Indonesia in Mining, Food, Pharmaceutical Industries
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Saudi Arabia Boosts Strategic Partnership with Indonesia in Mining, Food, Pharmaceutical Industries

Saudi Arabia Boosts Strategic Partnership with Indonesia in Mining, Food, Pharmaceutical Industries

Minister of Industry and Mineral Resources Bandar Alkhorayef is leading a high-level delegation from the Kingdom’s industry and mining ecosystem on an official visit to Indonesia from April 15 to 17 to strengthen bilateral economic ties.
The visit aims to attract high-quality investments to the Kingdom and explore mutual investment opportunities in the mining sector and various industrial fields, particularly food, pharmaceuticals, and auto parts, aligning with the objectives of the Kingdom Vision 2030 to diversify the economy and position the Kingdom as a leading global industrial power, SPA reported.
The delegation will participate in high-level strategic meetings with senior government officials from various Indonesian ministries and will also meet with leaders of major Indonesian companies in mining, food, pharmaceutical, and other strategic industrial sectors.

Key meetings in Jakarta will include sessions with the minister of energy and mineral resources and the minister of industry, in addition to discussions with private sector leaders such as the CEO of PT Vale and the chairman of BioPharma.
Indonesia is considered a strategic partner for the Kingdom in Southeast Asia. By the end of 2023, bilateral trade between the two countries reached SAR22.5 billion, with Saudi exports amounting to SAR15 billion and Indonesian imports totaling over SAR7.5 billion.

These figures reflect the strength of economic relations and the mutual interest in expanding areas of cooperation and capitalizing on available opportunities in key sectors. Globally, Indonesia’s exports reached approximately SAR814 billion in 2024, marking a 1.3% annual increase.
Alkhorayef’s visit sets the stage for a new phase in bilateral relations, with both sides focused on building a long-term strategic partnership that supports their local economies and enhances economic integration between the two nations.