Baku, Azerbaijan, Oct. 9
By Aygun Badalova - Trend:
Turkish lira will weaken over the coming years, William Jackson, the economist at British economic research and consulting company Capital Economics believes.
The country's banks have become increasingly dependent on short-term foreign capital inflows to roll over maturing external debt, Jackson said in a report obtained by Trend.
By the same token, they are now more vulnerable to any deterioration in global risk appetite. And if foreign funding were to dry up, this could result in a severe credit crunch, he added.
Economist's concerns about Turkey's banks centre on three things: the sheer scale of the credit boom over the past decade; domination of a sizeable portion (around a third) of bank lending in foreign currencies; the funding of much of the recent credit binge by foreign borrowing.
"Given the scale and structure of the recent credit boom, it's hard to see how Turkey can avoid a situation in which non-performing loans rise and bank lending slows sharply," Jackson noted in a report.
"All in all, there appear to be serious vulnerabilities in Turkey's banks. Pinning down the timing of when these problems might come to a head is difficult. But given our view that the lira will weaken further, interest rates will be hiked, and that the economy will weaken, it looks increasingly likely that bad debts will rise and that credit growth will slow sharply at some point within the next few years," Jackson said.
Turkey's Central Bank adopted a decision in February 2015 to reduce the key interest rate from 7.75 percent to 7.5 percent, which has stayed unchanged since that time, Reuters reported.
Turkey's currency advanced as much as 1.1 percent to 2.9070 per dollar on Thursday, climbing for a fifth day to the highest since Sept. 1.
The official exchange rate for October 9 is 2.9410 TRY/USD.