Foreign banks have invested heavily in Turkey, leaving them exposed to any jolt to confidence as the country purges police, military and the judiciary following a failed military coup.
France and the United Kingdom have the largest credit exposure to the country, central bank data from the end of last year shows, while banks including UniCredit, BBVA and HSBC are among those with big operations or investments, Reuters reported.
France’s exposure of roughly $40 billion, more than twice that of the United States, as well as that of Germany and Italy illustrate how Europe’s already fragile banks stand to lose most. Once viewed as an attractive market with strong growth and a young population, Turkey’s economy has recently been slowing.
Some European banks had attempted to sell out. Britain’s HSBC in February abandoned plans to sell its Turkish operation after poor offers.
Reuters reported in June that Sberbank, Russia’s biggest bank, had been considering selling its Turkish unit Denizbank. Unicredit too had said it could trim stakes in subsidiaries including Turkey’s Yapi Kredi Bank.
Events in recent days will make any such move far harder.
$718b Market
Meanwhile, Finance Minister Naci Agbal vowed that Turkey’s economy would survive any short-term shocks from the failed coup last week, hoping to persuade investors to stop dumping their holdings in the $718 billion market.
Investors disagreed, having earlier driven the Istanbul Borsa 100 down 7.1%. Goldman Sachs warned that the lira would fade to a level of 3.10 to the dollar within three months, a record low, and Fitch warned that President Recep Tayyip Erdogan’s continued focus on the purge had “the capacity to weaken sovereign creditworthiness by undermining checks and balances and reducing the scope for structural economic reforms.”
On Tuesday morning the lira was flat at 2.97 to the dollar.
Moody’s also issued a warning on Monday that it might downgrade the country’s credit rating to junk status. “Turkey continues to operate in a fragile financial and geopolitical environment and its external vulnerability is rising, implying the rising possibility of an escalation in capital outflows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis,” said Alpona Banerji, an analyst with Moody’s.
Agbal argued that the Turkish economy’s fundamentals remained the same today as they did on Friday, before the coup.
