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At least two foreign banks have also withdrawn from cash trading the lira, separate sources at those banks said, potentially limiting local firms' access to foreign currency and hindering foreign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



FAO Aims for Key Outcomes at COP16 in Saudi Arabia

Preparations in the Saudi capital ahead of hosting the COP16 conference on combating desertification (from the “COP16” page on the X platform)
Preparations in the Saudi capital ahead of hosting the COP16 conference on combating desertification (from the “COP16” page on the X platform)
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FAO Aims for Key Outcomes at COP16 in Saudi Arabia

Preparations in the Saudi capital ahead of hosting the COP16 conference on combating desertification (from the “COP16” page on the X platform)
Preparations in the Saudi capital ahead of hosting the COP16 conference on combating desertification (from the “COP16” page on the X platform)

Dr. Abdul Hakim Elwaer, Assistant Director-General of the Food and Agriculture Organization (FAO), stated that the organization will take an active role at COP16, the UN conference on combating desertification, scheduled to take place in Saudi Arabia in early December.

In remarks to Asharq Al-Awsat, he expressed confidence that the conference—the first of its kind in the Middle East—would produce significant outcomes.

Elwaer’s comments came during a roundtable organized by FAO’s regional office in Cairo, attended by a select group of media representatives. The session focused on FAO’s participation in the upcoming conference and the importance of the Rio Trio —the integrated framework of the three major UN conventions addressing climate change, biodiversity conservation, and desertification.

Fida Haddad, FAO’s Program Officer for Land Rehabilitation and Climate Change, highlighted the interconnectedness of the three conventions and noted that COP16 would place a strong emphasis on land and water rehabilitation and their sustainable management.

Haddad pointed out that approximately 90% of the Middle East is affected by arid conditions. Despite this, local communities and Arab governments have made notable progress in addressing desertification and drought. She also announced that, for the first time, FAO has successfully placed food systems on the COP16 agenda, enabling discussions on how land rehabilitation can enhance food supply chains and systems.

Elwaer underscored FAO’s central role in achieving the second Sustainable Development Goal (SDG): eradicating hunger. He emphasized that FAO actively engages in the UN conventions on climate change, biodiversity, and desertification, which collectively contribute to this mission.

FAO’s focus, according to Elwaer, is on transforming food and agricultural systems to become more inclusive, efficient, and sustainable, aiming for better production, nutrition, and livelihoods. He highlighted the organization’s success in integrating these priorities into the agendas of the three conventions and collaborating with host countries on joint initiatives.

He further noted that Saudi Arabia’s hosting of COP16 is particularly significant for the region, which faces pressing challenges such as water scarcity, desertification, and food insecurity. The conference presents an opportunity for Middle Eastern nations to highlight these issues, explore solutions, and ensure their inclusion in global environmental discussions, not only at this event but in future COP sessions, he underlined.

Elwaer emphasized the growing global attention on desertification, as it is now impacting regions previously unaffected, such as southern Europe and parts of Latin America. These areas are witnessing alarming declines in arable land and forests, prompting them to seek lessons from the Arab world, which has developed resilience strategies to combat desertification over centuries.

FAO will have a strong presence at COP16, with two dedicated pavilions—one in the Blue Zone for official delegations and another in the Green Zone to engage civil society and conference participants, he said.

He added that in collaboration with Saudi Arabia and the UN, FAO will lead coordination on Food Day and Governance Day, scheduled for December 5 and 6, respectively. The organization will also participate in other specialized sessions throughout the conference.