Ratings agency Fitch announced that Turkish firms are vulnerable to currency fluctuations, due to the weak monetary policy credibility, high global inflation and forecasts that the Federal Reserve System will taper its asset-purchase program.
“Turkish corporates’ widespread use of foreign-currency borrowing makes them among the most exposed in EMEA to exchange rate movements,” Fitch said in a report on Wednesday.
“The country’s historically weak monetary policy credibility has previously exacerbated such movements and the risk has increased following the removal of the central bank governor earlier this year,” Fitch added.
Turkish President Recep Tayyip Erdogan has called on the central bank to reduce borrowing costs in July or August. He sacked and replaced the bank’s governor in mid-March after he raised interest rates to 19 percent.
The central bank left its key benchmark interest rate unchanged at 19 percent on Thursday.
The statement added that accelerating vaccination rollout would improve the global economy.
Turkey’s lira hit a record low beyond 8.8 per dollar at the start of June on concerns among investors that the central bank will cut interest rates prematurely.
Among companies examined for this report, hard currencies account for 70 percent of debt on average but only 46 percent of revenue.
Turkish corporates are often more dependent on short-term funding than international peers and frequently only have access to uncommitted bank lines. This can leave them exposed to the risk of funding interruptions and market closures.
“We have not seen any significant change in companies’ reliance on uncommitted lines. Nor has there been much change in the distribution of debt maturities, with issuers regularly needing to refinance debt maturing within 12 months,” the report added.
The Turkish sovereign rating (BB-/Stable) has also fallen during this period, pulling down the Country Ceiling (BB-).
Two-thirds of corporate ratings are now at or above the Country Ceiling, meaning the portfolio is now more sensitive to sovereign rating changes.
However, it also means issuers are more likely to have strong credit metrics for their rating, meaning they should have more headroom as long as the sovereign rating remains unchanged.
