Turkey’s MSCI gains, despite a massive credit crunch

The 17 percent gain by MSCI Turkey since its low in mid-August despite the volatility in markets  is difficult to sustain as there is no concrete sign of an improvement in relations with US and Germany and loans continue to shrink, Para Analiz website reported.

 BIST-100 gained another 1.2 percent led by banks, closing at the level of 100,299 with a trading volume 22 percent higher than the last 5 days’ average, the website said, adding that the country’s banking index gained 3.7 percent and industrials index gained 0.2 percent.

Meanwhile, the interest rate on 2-year benchmark bond rate increased to 25.94 percent (up 24bps) while 10-year bond rate inched up to 18.02 percent (up 23bps), Para Analiz said with the USD/TRY reversing its appreciation on Friday, closing the week at 6.05.

According to BRSA weekly bulletin for the week of September 21, total loans increased by 0.6% w/w. Currency adjusted total loan growth came down to 9.1% y/y from 9.6% (10.5% in end August). TL loans decreased by 0.6% and FC (USD) loans increased by 0.2% vs. a week ago. TL commercial loan growth (13 week annualized) shows a 6.3% contraction (4.2% contraction a week ago). The growth trend (13w-annualized) in consumer cash loans decelerated to 2.9% from 9.9% a week ago. Quarter-to-date TL loan contraction by 1.3% (vs. 3.6% growth in 2Q18).

One analyst stressed the expectation that flat loan growth trend to prevail until macro dynamics stabilize considerably, which will in turn pavie the way for more affordable rates while easing concerns around rising credit risk costs.

Para Analiz noted that since mid-June, the country’s gross gold reserves dropped by USD6.7bn, while decrease in gross FX reserves realized at USD14.2bn.

‘’Total gross reserves was therefore down USD21.5bn in the last 3 months (20% decline –at a half-life rate of 29 weeks). Net reserves went down to USD28.2bn from 29.6bn a week ago, while FX-only portion was down to USD18.3bn from USD20.0bn. Net FX reserves stand at a low level considering cUSD10.0bn annual government debt repayments,’’ it said.