Turkey

Confronted with a plunging lira, Turkey’s central bank last month urged the general public to borrow in the currency in which they are paid. That warning came too late for the country’s energy companies, Bloomberg News reported. Turkish power producers are emerging as one of the biggest risks to the nation’s banks after they plowed billions of dollars into new power generation, distribution projects and deals over the past 15 years.

Turkey’s Bereket Enerji group has put power plants on sale as part of plans to refinance and pay down its debts, joining other Turkish power companies that are renegotiating their foreign-currency loans with lenders, seven people with knowledge of the plan said, Bloomberg News reported.

The battered Turkish lira has enjoyed a period of relative tranquility over the past two weeks. An emergency interest rate hike and soothing noises from senior officials appeared to calm nerves following a prolonged game of brinkmanship between President Recep Tayyip Erdogan and international investors that drove the currency to record lows, the Financial Times reported. But the problems have not gone away. Figures released on Monday showed a sharp rise in inflation.

Turkish banks’ shares fell for a fourth day and are on track for the biggest weekly decline in almost two years as Fitch Ratings is said to take some Turkish lenders to rating watch negative, Bloomberg News reported. Fitch Ratings has prepared a report on Turkish banks, according to two people with direct knowledge of the issue and who asked not to be named because it hasn’t been published by Fitch. Report takes some Turkey banks to rating watch negative, according to one of the people.

Turkish President Recep Tayyip Erdogan finally conceded to his financial lieutenants’ currency-rescue plan, but a look back across recent eleventh-hour rate hikes in emerging markets shows it’s not enough to get the lira back on track, Bloomberg News reported. It took three years for Russian Central Bank Governor Elvira Nabiullina to reap rewards for her ultra-orthodox monetary policies, through an influx of investment and low volatility. Argentina saw immediate payoff for its extreme rate move this week -- of more than double Turkey’s 300 basis-points hike.

Contagion? Not this time. Developing nations are defying concern that the tumbling Turkish lira and Argentine peso will infect global financial assets, Bloomberg News reported. While pundits including Mark Mobius said the pain for emerging markets isn’t over and Paul Krugman said the current wobble had the whiff of a crisis to it, markets have been far more sanguine. On Thursday, 16 of 24 emerging-market currencies gained as the lira plunged more than 4 percent even after Turkey’s emergency interest-rate hike. Meanwhile, Argentina’s peso extended a two-day slide.

Turkey’s banks will likely benefit from Wednesday night’s interest-rate increase, though there will be some pain as well, Bloomberg News reported. That’s the assessment of some analysts after the central bank’s emergency move to halt a run on the lira. While there will be a short-term hit to funding costs and lending margins, banks will be helped as the move stems panic in financial markets, according to Cagdas Dogan, a banking analyst at Istanbul-based BGC Partners Inc.

Turkey’s banks are at risk of losing their reputation as the crown jewel of the economy as the government’s single-minded focus on growth threatens to undermine profits and cause an uptick in bad loans, Bloomberg News reported. Lenders in one of the world’s fastest-expanding emerging markets are finding themselves at the center of President Recep Tayyip Erdogan’s ambitions of winning another election in an early vote called for June 24.

Argentina’s latest capitulation may have helped to keep Turkey out of the headlines in recent weeks but some believe the latter’s banking sector could ultimately provide the most dramatic fireworks, the Financial Times reported. When a country has loaded up on foreign currency-denominated debt, the last thing it wants to see is a plunge in its own currency. Unfortunately, Turkey has seen just that, with the lira slumping 12.6 per cent against the dollar since mid-February. A look at the country’s metrics is sobering.

In an unexpected move, Standard & Poor’s cut its sovereign debt rating on Turkey further into junk territory on Tuesday, citing widening concern about the outlook for inflation amid a sell-off in the Turkish lira currency, Reuters reported. S&P said the ratings decision, cutting Turkey to “BB-/B” from “BB/B,” was not part of its regularly scheduled reviews, reflecting what it said were growing concerns. “The downgrade reflects our concerns over a deteriorating inflation outlook and the long-term depreciation and volatility of Turkey’s exchange rate,” S&P said in a statement.