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16 Billion Reasons Why Turkey’s Currency Crisis Will Become A Debt Crisis

Earlier this week, when the Turkish lira imploded over the weekend, plunging by the most on record in two consecutive days, bonds of Turkish banks tumbled amid concerns that lira’s slump this year would makes it extremely difficult for lenders to repay dollar-denominated debts or rollover maturities. As a result, numerous bonds issued by Turkish banks tumbled to record lows on Monday: bonds of Yapi Kredi Bankasi AS were among the hardest hit, losing almost 30 cents on the dollar in the past week.

The reason for the prompt liquidation were investors fears that Turkish lenders would struggle to find the capital to repay about $34.4 billion of bonds sold during a decade of rapid economic growth and historically low global borrowing costs. Turkish banks alone have to service $7.6 billion in USD-denominated debt by the end of 2019.

“The material level of foreign currency borrowings among Turkish institutions makes them vulnerable,” said BNP Paribas analysts, while a Goldman report dropped the hammer on panicked bondholders with the claim that if the Turkish Lira tumbled to 7.1, then the excess capital in the Turkish bank sector would be wiped out.

Yet while the market has already punished Turkish banks, they are not the only culprits behind the nation’s ravenous dollar-denominated debt binge, and there are no less than 16 billion reasons why the Turkish currency crisis, unless arrested early, would morph into a debt/rollover crisis.

According to Bloomberg calculations, major Turkish companies, financial institutions and the government are facing a “bond wall” of at least $16 billion in bonds denominated in foreign currency that are due by the end of next year.

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