The Turkish financial market has been suffering for weeks but the worst result, after the drop of 5,5% at the opening on Monday morning, is today's one which makes slide the Turkish lira to -20% against the dollar, the exchange rate to 6,57 (historical record) and increase the loss since the beginning of the year with the collapse rising over 30%.
The cause of the alarming debacle are not only the fears related to the economic policy choices of the authoritarian president and fresh from re-election Recep Tayyip Erdoğan and the strong exposure in the country of the French bank Bnp Paribas, down in the stock market by 3,31% in the middle of the session. Italy's Unicredit, down 3,62%, and Spain's BBVA, down 4,19% in Madrid. But also the effect of US sanctions against Turkey, especially after a tweet from Trump announced the doubling of duties on Turkish steel and aluminum exports to the States. But the initial coup de grace of the Turkish lira on Black Friday was however given by the Financial Times report which provides evidence of the concern of the ECB supervisors in the face of the high exposure of Eurozone banks towards Turkish debt.
Although the situation of the banks involved is not classified as critical by the Eurotower, monitoring has been started: Unicredit boasts loans for 17 billion euros, less than the French at 38,3 billion and, above all, the Spanish at 83,3 billion. Unicredit has already valued its stake in Yapi Kredit (40,9% controlled) at 1,15 billion euros from 2,5. Unicredit, contacted by Radiocor, did not comment
The risk that concerns the ECB more closely is that Turkish borrowers are not covered by the collapse of the lira and begin to default on loans in foreign currencies, which constitute about 40 percent of assets in the Turkish banking sector.
Turkey has always recorded a large deficit in its external accounts - for example, according to official calculations by the Farnesina, in 2017 Italy was Turkey's 5th trading partner, recording a total trade equal to 19,8 billion dollars to +11,1% compared to the previous year, and of which 11,3 billion dollars of exports and 8,5 billion dollars of imports. The consumer price index is at 16%, Turkish companies register a gross debt of 337 billion which drops to 217 net of assets and the risk of registering hyper-inflation is around the corner.
Erdoğan's reply in the face of the collapse of the Turkish lira is not delayed and the president denounced political maneuvers against his state: "There are several campaigns underway, don't pay any attention to them", he said quoted by Reuters. "Don't forget this: if they have dollars, we have our people, our law, our Allah."
Meanwhile, the Istanbul Stock Exchange, the Bist 100, returned to parity towards the end of the morning while all European stock exchanges are down. 259-year BTP-BUND spread mid-session at XNUMX points.
Turkey has been a major player in the geopolitical game with Russia in recent weeks, especially after the country decided to buy missile defense systems from Russia, triggering US sanctions, with the US imposing unprecedented sanctions on the ally Born. Erdogan has announced similar retaliation and said in a speech in Ankara on Saturday that he had given instructions to freeze all assets of US justice and interior ministers in Turkey, 'If they have any,' he said.
In the same speech Erdoğan urged the US not to let political issues affect the economy: 'We don't want to extend political and judicial issues to the economic dimension that harms both sides,' Erdogan said after calling the US sanctions ' absurd'. One of the political issues mentioned by Erdoğan is also the arrest of an American cleric, a move that has angered Donald Trump.
The international markets are waiting for Berat Albayrak, Turkish finance minister and Erdoğan's son-in-law, who will present today a "new economic model" that spells out measures to reduce debt, the budget deficit and the large current account gap. In the afternoon the Turkish president will hold in the eastern province of Bayburt. But it is not excluded that sooner or later, to prevent Turkey from going into default, the International Monetary Fund will have to intervene.
- UPDATE -
ERDOGAN URGES CITIZENS TO EXCHANGE FOREIGN CURRENCY: "IT'S A NATIONAL FIGHT"
Turkish President Recep Tayyip Erdogan has urged his fellow citizens to exchange their foreign currency to support the dying Turkish lira, saying it is a "national struggle" against the "economic war" declared, according to him, against Ankara. "If you have dollars, euros or gold under your pillow, go to the banks to exchange them for Turkish lira, it's a national struggle," the president said in a televised speech in Bayburt, in the northeast of the country.
According to the state news agency, Anadolu, the Turkish president has declared that the country will overcome the crisis as it has overcome the recent floods that hit the provinces of Ordu, northern Turkey, in recent days. "With God's help, we will overcome catastrophes and achieve success in economic warfare."
Meanwhile, Unicredit reports that a 10% devaluation of the Turkish lira has a net impact of 2 basis points on the bank's fully loaded Cet1 ratio. The figure is the result of a negative impact of 6 basis points on equity and a 4 basis point increase in RWA (risk-weighted assets).
As for the exposure to Turkish government bonds, the half-yearly report shows that it is equal to 165,18 million, or 0,14% of the total 120,7 billion of UniCredit's sovereign exposure.
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As far as Yapi Kredi is concerned, the only contribution to the UniCredit group's financial statements is its share of the profits (Yapi is 81,9% controlled by an equal joint venture between UniCredit and Koc), equal in the first half to 183 million , i.e. less than 2% of group revenues.
Yapi weighs on UniCredit's RWA for 25 billion. The analysts of a Milanese sim underline that 'at least for the moment, Yapi Kredi has no operational problems', that 'there are no problems raising funds' and that therefore 'there are no immediate reasons to proceed with the adjustments to the book value of the subsidiary (equal to 2,5 billion).
Analysts have however attempted to evaluate the impacts of a worst case scenario: "If we want to be absolute pessimists - they write - we can take into consideration the apocalyptic hypothesis of a default by Yapi Kredi". Also in this case, “the effect on Unicredit's Cet1 would be heavy but not dramatic, equal to -35 basis points. If the parent company decides to cancel the value of the equity investment, the fallout would be -40 basis points".
