Turkish banks reliant on central bank for foreign currency liquidity – Fitch

Turkish banks have become highly reliant on the central bank to provide them with foreign exchange liquidity, Fitch Ratings said in a report.

While the sector’s foreign currency liquidity of $82 billion at the end of the third quarter is adequate to cover a short-lived market shutdown and moderate outflows of foreign currency deposits, just over half of that liquidity is made up of placements at the central bank, largely comprised of foreign currency swaps, Fitch said in the report on Tuesday.

The central bank’s reserves of foreign currency were negative at the end of September when including banks’ foreign currency claims, Fitch said. That means Turkey’s external finances could come under pressure should banks repay significant amounts of foreign debt using those claims, which make up most of the latter’s foreign currency assets, it said.

Banks’ short-term external debt increased by $2 billion to $84 billion in the third quarter compared with the end of last year, while total external debt fell by $8 billion to $135 billion, Fitch said. Banks’ external debt servicing requirements over 12 months, in the event of market closure, totalled about $45 billion at the end of September, it said.