Having exercised his newly-omnipotent capabilities to alter central bank decrees and appointing a puppet cabinet, Turkish President Erdogan is now urging the general public to borrow in the currency in which they are paid, but, as Bloomberg reports, that warning came too late for the country’s energy companies.
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. Now, with the lira depreciating faster than they can raise electricity prices, some utilities earn less per year than what they have to repay in foreign-currency loans, according to the Ankara-based Electricity Producers’ Association.
Domestic banks are the most exposed to loans in foreign currencies, JPMorgan Chase & Co. said in a note in May.
The NPL ratio for the banking industry rose to just over three percent in the week ended June 29 for the first time since October, according to data from the banking watchdog.
“A realistic estimate of non-performing loans are around 7-8 percent,” saidAtilla Yesilada, an economist for GlobalSource Partners in Istanbul. “There is no feasible scenario of lower loan rates through 2020 either. We can expect a default wave post-state of emergency,” Yesilada said. The state of emergency is due to expire on July 18.
At least $6.1 billion of loans taken out by energy companies are known to be in the process of being restructured or refinanced, including about $4 billion of debt owned by Bereket Enerji, which is selling power plants to cut its liabilities. Companies across various industries have agreed, or are still in talks, to reorganize at least $24 billion of loans.
“All these restructurings and the rise in loans under close watch in bank portfolios signal a bomb ticking in the hands of the banking system,” Yesilada said.
The Lira is tumbling to a new record low...
“The lira’s depreciation in recent years was unexpected but that is not the only factor,” said Zumrut Imamoglu, the chief economist of Turkish industry and business association Tusiad. “While costs are increasing because of the currency shock, companies can’t adjust their prices accordingly due to state regulation and price ceilings, which in turn, causes financial problems.”
Additionally, the broad Emerging Market FX market is re-tumbling today after dead-cat-bouncing to 4-week highs on the heels of some vague hope that trade wars are over.