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At least two foreign banks have also withdrawn from cash trading the lira, separate sources at those banks said, potentially limiting local firms' access to foreign currency and hindering foreign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 EXIM Hosts Global Risk Experts Meeting in Riyadh

The event gathered specialists from 47 organizations from 33 countries; it served as a platform for discussing strategies, partnerships, and innovative solutions. - SPA
The event gathered specialists from 47 organizations from 33 countries; it served as a platform for discussing strategies, partnerships, and innovative solutions. - SPA
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Saudi EXIM Hosts Global Risk Experts Meeting in Riyadh

The event gathered specialists from 47 organizations from 33 countries; it served as a platform for discussing strategies, partnerships, and innovative solutions. - SPA
The event gathered specialists from 47 organizations from 33 countries; it served as a platform for discussing strategies, partnerships, and innovative solutions. - SPA

The Saudi Export-Import Bank (Saudi EXIM) hosted the Berne Union's Country Risk Specialist Meeting, providing a platform for experts and thought leaders in risk management from the export credit community.
At the meeting, which took place from November 19 to 21 in Riyadh, the attendees exchanged best practices to better protect the industry amid shifting global dynamics.
According to a press release issued by the Saudi EXIM on Saturday, the event gathered specialists from 47 organizations from 33 countries; it served as a platform for discussing strategies, partnerships, and innovative solutions.
By strengthening institutional resilience, the industry is ready to turn global economic challenges into opportunities for economic prosperity, said the release, adding that it played a crucial role in advancing global trade, strengthening international cooperation, and developing credit solutions that empower export activities while controlling risk, SPA reported.
According to the release, discussions centered on critical risks impacting international trade and the global economy, such as debt sustainability and geopolitical tensions, along with innovative approaches to risk modelling. Participants also explored the global shifts in infrastructure, energy and critical minerals sectors, and were given an overview of Saudi Arabia's National Industrial Strategy, which focuses on economic diversification through investments, developing new sectors, and promoting local industries.
In his opening remarks, Saudi EXIM CEO Eng. Saad bin Abdulaziz Al-Khalb said the meeting is an ideal platform to address risks impacting global economic decision making.
He stated: "Through such meetings, we can turn challenges into strategic opportunities and enhance our resilience in an ever-changing world. At Saudi EXIM, we remain committed to enabling companies by offering expert financial and non-financial solutions to navigate risks effectively."
He also said that "at Saudi EXIM, we place great emphasis on risk management. In alignment with the main objective of this meeting, I am pleased to announce the completion of our independent country risk model, which is supported by advanced modelling tools and machine learning. This model will provide country ratings and predictions of default risks. We look forward to collaborating with our partners in other export credit agencies to exchange knowledge and expertise, and to strengthening our risk management functions with greater responsibility and effectiveness."
Associate Director at Berne Union Eve Hall said: "The global risk landscape today is highly volatile and highly interconnected. As we navigate our way around the ongoing transformations connected to energy transition and shifting industrial strategies, the traditional concept of 'country risk' is becoming increasingly complex. Our industry excels at understanding, quantifying and pricing these risks, and by bringing together this community of experts for technical exchange the Berne Union is able to help support the development of the industry as a whole. The initiatives announced by our colleagues at Saudi EXIM, making use of new technology in risk analysis, provide a fantastic example of where collaboration in this field can be effectively applied."
The release disclosed that Saudi EXIM's membership in Berne represents a significant strategic step, and is consistent with the Kingdom's commitment to expanding collaboration and integration in the global economy.
This is achieved by building partnerships with leading institutions to address the challenges facing the export credit sector. It also aligns with the bank's goal of developing the export of national products and services through partnerships with national and international financial and funding organizations.
Berne Union works with global trade organizations to encourage the adoption of best practices in export credit insurance, and to cooperate in maintaining the stability of global trade.
Saudi EXIM, a development bank under the National Development Fund, contributes to diversifying the Kingdom's economic base by improving the efficiency of non-oil export ecosystems, bridging financial gaps, and minimizing export risks. This plays a role in helping the non-oil national economy grow, in line with Vision 2030.