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At least two foreign banks have also withdrawn from cash trading the lira, separate sources at those banks said, potentially limiting local firms' access to foreign currency and hindering foreign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 PIF Buys Istidamah Holding’s Stake in MBC for $2 Billion

Photo taken during MBC Group's opening of its new headquarters in Riyadh (SPA)
Photo taken during MBC Group's opening of its new headquarters in Riyadh (SPA)
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Saudi PIF Buys Istidamah Holding’s Stake in MBC for $2 Billion

Photo taken during MBC Group's opening of its new headquarters in Riyadh (SPA)
Photo taken during MBC Group's opening of its new headquarters in Riyadh (SPA)

The Saudi media group MBC has announced that Istidamah Holding, one of its shareholders, signed an agreement to sell its 54% stake to the Public Investment Fund (PIF) for around $1 billion (SAR 7.5 billion). This has pushed MBC’s share price up by the maximum limit of 10% in Sunday’s trading.
According to the terms of the sale and purchase agreement, disclosed by MBC to the Saudi Stock Exchange (Tadawul) on Sunday, Istidamah Holding, owned by the Ministry of Finance, will transfer its entire stake in MBC to PIF, positioning PIF as the controlling shareholder of the company.
MBC reported that the private transaction values each share at SAR 41.6 ($11.1), involving the sale of 179.55 million shares. The deal is expected to close following regulatory approvals.
MBC shares rose to the maximum limit of 10%, reaching SAR 45.75 after the announcement.
In his comments on the deal, the Senior Head of Asset Management at Arbah Capital, Mohammad Farraj, told Asharq Al-Awsat that the acquisition of a significant stake in MBC by the Saudi Public Investment Fund marks a milestone in the history of media and entertainment in the region.
He explained that this strategic move reflects increased confidence in the sector’s ability to achieve sustainable growth and underscores the government’s commitment to supporting and developing this vital economic engine.
In the long term, Farraj said he expects MBC’s stock to achieve sustainable growth for several reasons, including government support, as MBC will benefit from substantial government backing through PIF, enabling it to pursue ambitious projects and expand its operations.
In addition, MBC plans to focus on producing high-quality content to meet diverse audience needs, which will enhance its popularity and attract more advertisers, he remarked.
Farraj pointed out that the company aims to broaden its reach into new markets outside Saudi Arabia, increasing revenues and reinforcing its position as a global brand.
The analyst also suggested that PIF’s acquisition of MBC could attract further local and foreign investments into the sector, bolstering its competitiveness and innovation.
“A new generation of innovative products and services, such as digital platforms and specialized apps, will enhance user experiences and open new growth avenues,” he said.
MBC was the first new listing on the Tadawul index in 2024, following its initial public offering (IPO) of 10% of its shares at the end of the previous year, raising $222 million. The group offered 33.25 million common shares, representing 10% of its capital, at an IPO price of SAR 25 per share.
MBC Group’s profits rose by 66.5% year-on-year in the second quarter of the current year, reaching $31 million (SAR 116.4 million) in net income, despite an 11.6% drop in revenue, which fell to $256.8 million (SAR 963.9 million).