Turkey Banks Earnings Likely to Drop 5%

Turkey’s banks are about to reveal the extent of the damage caused by the lira’s plunge and a surge in interest rates.

As the country’s biggest lenders start reporting second-quarter results this week, investors will be scouring their balance sheets for clues into how they’re coping from a 22% slide in the currency this year that is knocking the ability of companies to repay their foreign debt. They’ll also be looking for signs on whether the highest borrowing costs in almost a decade have started to cool the economy, Bloomberg reported.

Bank profits are expected to show an average 5% drop from the previous three months, according to data compiled by Bloomberg based on the median estimates of the six-biggest publicly traded lenders. The lira weakened 3.6% against the dollar on Tuesday, falling more than any other currency, after the central bank unexpectedly left interest rates unchanged.

“Turkey’s weak currency, together with a 500-basis point interest-rate hike year-to-date will wreak havoc on banks’ asset quality, and raise alarm bells that flat 2018 cost-of-risk targets are increasingly unrealistic,” said Tomasz Noetzel, a European banks analyst for Bloomberg Intelligence in London. Those efforts are being further complicated by the adoption of new accounting standards that has led to higher provisions, he said.

Akbank TAS will report earnings on July 25, followed a day later by Turkiye Garanti Bankasi AS. Other lenders include Turkiye Is Bankasi, Yapi ve Kredi Bankasi AS, Turkiye Vakiflar Bankasi TAO and Turkiye Halk Bankasi AS.

Meanwhile, the Turkish Central Bank on Tuesday announced it is keeping its one-week repo rate—also known as the bank’s policy rate—constant at 17.75%.