June 15, 2018 / 5:13 PM / 9 months ago

Turkish bank borrowing costs hit record high as lira pressure mounts

    LONDON, June 15 (Reuters) - A trio of top Turkish banks saw
their borrowing costs hit record highs on Friday as mounting
pressure on the lira ahead of elections later this month sparked
more selling in the country's bond markets.
    Turkey's government bond yields also pushed higher in the
turbulence, but it was the 2023 and 2024 dollar-denominated
bonds of AK Bank, Is Bank and Yapi Kredi
 that hit all-time lows.
    Turkey's banks have come under scrutiny following 425 basis
points of interest rate hikes in recent weeks that looks set to
slow the country's economy and cause a rise in missed loan
    Any dollar-denominated loans have been getting more
expensive to service due to the lira's 20 percent slump this
year, while there is wider uncertainty about presidential and
parliamentary elections later this month. 
    While a result that sees Tayyip Erdogan and his AKP party
win both votes would ensure a degree of certainty in
policymaking, one where the AKP only secures a minority in
parliament could make decisions much less easy to predict.
    Rating agency Moody's last week downgraded and placed on
review for further downgrade the ratings of 17 Turkish banks.
    It said the downgrades reflected its view that "the
operating environment in Turkey has deteriorated, with negative
implications for the institutions' funding profiles".

    Bank for International Settlements data shows that Turkey's
banks have $56.5 billion of dollar debt compared with only $2.1
billion of lira-denominated debt. In total the whole economy has
$200 billion of dollar debt.
    "The general bearishness (on Turkey) and the slowdown in the
economy that is coming makes it tricky for Turkish bank bonds,"
said asset manager UBP macro and FX emerging market strategist,
Koon Chow.    
 (Reporting by Marc Jones
Editing by Hugh Lawson)
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