A few additional points here --
As I find the balance sheet of Turkey's banks fascinating.
As I find the balance sheet of Turkey's banks fascinating.
Turkey's banks account for almost 1/2 of Turkey's external debt, and about 2/3rds of Turkey's maturing STD.
But it isn't immediately clear why the banks needed so much external fx funding: their domestic fx deposit base is big & covers their (large) domestic fx lending ...
But it isn't immediately clear why the banks needed so much external fx funding: their domestic fx deposit base is big & covers their (large) domestic fx lending ...
The really rapid growth in bank lending over the last eight years actually was in lira -- the lira loan to deposit ratio has spiked up
(This is table 6 of the IMF staff report, starts with 2010 and ends 2017)
(This is table 6 of the IMF staff report, starts with 2010 and ends 2017)
What makes Turkey unique and interesting, from a balance sheet point of view, is the recent ability of Turkey's banks to use fx funding to support rapid TRY loan growth. That is what makes Turkey a bit different from the 1997-98 Asian crisis cases.
How did the banks do it?
a) bank equity all in TRY, even tho balance sheet heavily in fx;
b) heavy use of cross currency swaps (e.g. borrow fx abroad for 1-5s, swap into lira for 3ms)
c) the central banks' reserve option mechanism (de facto a swap facility with the central bank)
a) bank equity all in TRY, even tho balance sheet heavily in fx;
b) heavy use of cross currency swaps (e.g. borrow fx abroad for 1-5s, swap into lira for 3ms)
c) the central banks' reserve option mechanism (de facto a swap facility with the central bank)
Net effect -- Turkish banks have a $300b plus (close to 50% of post depreciation GDP) fx balance sheet, v just over $150b in domestic fx loans. so lots of fx assets other than corporate loans, including some offshore fx deposits and a decent chunk of fx (& gold) at the CBRT.
The banking system almost certainly holds more liquid fx assets than the CBRT holds on its own (I consider the banks fx reserve on deposit at the CBRT the banks' money) -- regulations that release that fx can provide near-term support for the currency.
But in aggregate the banks own holdings of FX and the CBRT's reserves fall well short of covering the banking system's short-term FX funding base. the raw material for an even bigger crisis is there.
Historically the bulk of the banks' funding has been sticky and has rolled over even during periods of stress.
But the absolute size of the system's external funding need is still striking.
See table 4 of the IMF staff report.
But the absolute size of the system's external funding need is still striking.
See table 4 of the IMF staff report.
The current account deficit is likely poised to disappear thanks to the lira 's depreciation and a coming credit crunch (see @RobinBrooksIIF). But the system is still potentially very short fx liquidity.
That's all --
Hope this makes sense.
Balance sheet analysis is intuitive to me but not to everyone.
Hope this makes sense.
Balance sheet analysis is intuitive to me but not to everyone.
