Mubasher: The Turkish lira (TRY) returned to slump again on Wednesday as concerns over the nation’s fragile financial system mounted.
Despite the still stronger performance than a few weeks earlier, the Turkish currency tumbled to TRY 6.3 against the US dollar in the mid-morning trades of the day, the lowest level in about two weeks.
By 11:31 am GMT, the USD/TRY pair rose 2.98% to TRY 6.4622.
The drop seemed to come on the back of a decision by the US ratings agency Moody’s on Tuesday to downgrade the credit rating of 20 Turkish financial institutions, citing a “substantial increase in the risk of a downside scenario,” for the country’s banks.
“There is a heightened risk of a downside funding scenario, where a deterioration in investor sentiment limits access to market funding," Moody's said, adding that “Turkish banks are highly reliant on foreign currency funding.”
Moreover, the agency’s note hinted that the Turkish banking sector faces a potential funding crisis.
In the coming 12 months, about $77 billion of foreign currency wholesale bonds and syndicated loans, which is 41% of the overall market funding, would need to be re-financed, Moody’s said.
“The Turkish banks hold around USD48 billion of liquid assets in foreign currency and have USD57 billion compulsory reserves with the Central Bank of Turkey, which would not be entirely available,” the New York-headquartered added.
In early August, the US imposed sanctions against Turkey in response for refusal to release the US evangelical pastor Andrew Brunson.
The Turkish authorities detained Brunson on the grounds of his alleged support for the banned Kurdistan Workers Party and the Gulenist movement, both of which were accused of being involved in the failed coup against President Recep Tayyip Erdogan in 2016.
The sanctions, which included the announcement of tariff hikes on Turkish aluminium and steel imports, sent the lira plunging. In addition to worries about Erdogan’s control over the monetary policy, the currency lost about 40% of its value against the US dollar this year.
