Turkey Update by jbchevrel, June 27, 2022
Turkey CDS was the strongest performing EM CDS in the benchmark CDX EM, today. the 5-year spread tightened by c10bp. the curve de-inverted, with the 2s5s steepening c60bp to -45bp, still inverted. $TRY had lost c5% on Friday and almost another 3% today. Turkey stepped up efforts to bolster the lira and cool lending with a surprise measure that bans loans to companies deemed to be flush with foreign-exchange cash, sending the domestic currency on its biggest rally this year. The country’s banking regulator is restricting commercial lira loans to corporate borrowers if they hold more than 15 million liras ($890,000) in foreign-currencies and if the amount exceeds 10% of total assets or annual sales. The authority, known as BDDK, announced the decision on Friday. The number of the companies that will be affected by the new rule is around 10.000, but because of a series of exemptions, the final number would be lower, according to a person familiar with the rule who asked not to be identified because he’s not authorized to speak publicly on the matter. The firms can buy eurobonds or invest in foreign exchange-protected deposit accounts to avoid restrictions, the person said. The move, stoked a rally in the lira on Friday, which at one point surged 5% against the dollar, the most this year. The Turkish currency traded up 2.5%, the world’s biggest gain versus the greenback on Friday. A side effect of Turkey’s outperformance has been the strength of BBVA synthetics. The SLAC 5-year spread tightened -6bp and the SUB 5-year spread tightened -15bp. BBVA had paid $1.4b for an additional 36% stake in Garanti following its voluntary takeover offer for the remaining shares of the Turkish bank it does not own. After the end of the acceptance period, BBVA owned a 86% stake in the Turkish bank. BBVA has been expanding in EM to boost income/growth.