Turkey's Albayrak sees no big risk to economy, but Moody's sounds alarm

[August 29, 2018]   By Ali Kucukgocmen and David Dolan

ISTANBUL (Reuters) - Turkey does not expect a big risk to the economy or financial system, the country's finance minister was quoted as saying on Wednesday, illustrating the deep divide between Ankara and global investors over a worsening currency crisis.

The comments from Finance Minister Berat Albayrak, who is President Tayyip Erdogan's son-in-law, come as ratings agency Moody's sounded more alarm about the outlook for the banking sector and as data showed economic confidence at its lowest in nearly a decade.

The lira has lost around 40 percent of its value this year, driving up the cost of fuel and food and heightening concern about the risk to banks and the broader economy. Initially sparked by worries about Erdogan's influence on the central bank, the crisis has worsened over a rift with Washington.

"We do not see a big risk about Turkey's economy or financial system," Albayrak told reporters on his flight back from Paris earlier this week, according to the newspaper Hurriyet. He cited low levels of net public debt and household debt, and the strength of the financial system, as reasons for his confidence, it said.

Investors are less sanguine. Moody's downgraded its ratings on 20 financial institutions on Tuesday, citing the increased risk of a deterioration in funding. The operating environment is now worse than previously expected, it said.

"The downgrades primarily reflect a substantial increase in the risk of a downside scenario, where a further negative shift in investor sentiment could lead to a curtailing of wholesale funding," Moody's said. It cut the ratings for some of Turkey's top banks, including Isbank <ISCTR.IS>, the biggest listed lender by assets.

The lira <TRYTOM=D3> weakened as far as 6.4029, its weakest since Aug. 15. It was at 6.3850 to the dollar at 0951 GMT. Banking stocks <.XBANK> fell 1 percent.

'DEEP RECESSION'

Around $179 billion of Turkey's external debt matures in the year to July 2019, equivalent to almost a quarter of its annual economic output, JPMorgan estimates. Most of that - around $146 billion - is owed by the private sector, especially banks, it said.

"Financing needs over the next 12 months are large and access to markets has become problematic," it said in a note.

Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation to announce his economic policy in Istanbul, Turkey August 10, 2018. REUTERS/Murad Sezer

For years Turkish companies have borrowed in dollars and euros, drawn by the lower interest rates. But the decline in the lira has driven up the cost of servicing those loans, and raised the possibility of ballooning bad debt for banks.

Official data on Wednesday showed economic confidence fell this month to its lowest since 2009.

"Staggeringly bad economic confidence reading for August," said Timothy Ash of BlueBay Asset Management in emailed comments. "Harbinger of a deep recession looming. Rebalancing full throttle."

Albayrak has signaled that Turkey wants to mend its ties with the European Union as it faces what he said are moves by the United States that threaten the global economy. His trip to Paris this week, where he met with France's finance minister, appeared to be part of that effort.

However, Ankara has so far found little help from overseas partners, apart from Qatar, which has pledged $15 billion in support. A German official on Tuesday denied a reported that Berlin was considering providing a financial lifeline to help Turkey avert a crisis.

The Hurriyet also quoted Albayrak as saying that steps would be taken to prevent foreign currencies from being used for real estate and shopping-mall store rents and sales.

Retailers in Turkey's malls, which often pay their rent in dollars, have also said their businesses were suffering due to the ailing lira.

Separately, the central bank said it would re-impose limits on overnight transactions, but at twice the limit that applied until Aug. 13, when it said it would provide all the liquidity needed.

(Editing by Dominic Evans)

[© 2018 Thomson Reuters. All rights reserved.]

Copyright 2018 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.