Turkish Finance Minister Says Weak Lira Will Not Threaten Banking Sector

Monday, 3 September, 2018 - 10:30
Asharq Al-Awsat

Turkish Financial Minister Berat Albayrak stressed on Sunday that the deterioration of the lira was not a threat to the banking sector.

His remarks stood in stark contrast to the predictions of major rating agencies that warned that the lira sell-off could weaken lenders’ assets.

In the event of a problem at banks, Ankara would be willing to step in with support, Albayrak told Reuters.

The lira has fallen some 40 percent against the dollar so far this year, hit by concerns about President Recep Tayyip Erdogan’s control over monetary policy and a worsening diplomatic rift with the United States.

Economists say the central bank needs to hike rates decisively to rein in double-digit inflation and support the currency. Erdogan, a self-described “enemy of interest rates”, wants low rates to keep a credit-fueled growth boom going.

“The central bank in Turkey has been maybe more independent than those in other countries,” Albayrak, Erdogan’s son-in-law, said. The bank will take steps “to continue this independence,” he said.

Turkey has reached a point where it requires a “full-fledged fight against inflation,” Albayrak said.

Investors have been unswayed by similar language in recent weeks. The central bank on Monday signaled that the worsening outlook for inflation was becoming a bigger risk, saying its monetary stance would be adjusted at its next meeting on September 13.

“Recent developments regarding the inflation outlook indicate significant risks to price stability,” it said after data showed inflation hit its highest level last month in nearly a decade and a half, at 17.9 percent.

Relations with the United States, a NATO ally and major trading partner, have soured over a series of issues including Turkey’s detention of an American pastor on terrorism charges.

For years, Turkish firms have borrowed in dollars and euros, drawn by lower interest rates. The currency slump has driven up the cost of servicing that debt and investors fear that banks could now be hit by a wave of bad loans.

Around $179 billion of Turkey’s external debt matures in the year to July 2019, according to JPMorgan estimates. Most of that - around $146 billion - is owed by the private sector.

Ratings agencies Moody’s and Fitch both sounded alarm about the outlook for banks last week, with Fitch estimating that banks’ foreign-currency lending now stood at around 43 percent of all loans.

“I have no reason to be worried at this stage. But we are aware how important the banking sector is. We are in a close coordination and cooperation with our banks and the (banking watchdog) BDDK,” Albayrak said.

“We are not expecting any problems in the banking sector, but in case of a problem, we will support them in every way.”

He also dismissed concerns about debt, including in the private sector. He said the current account deficit will be “considerably below” forecasts by year-end and “much stronger” in 2019.

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