Turkey’s lenders slumped to lowest level in more than a year as central bank Governor Erdem Basci ruled out raising interest rates and the lira weakened past 2 per dollar for the first time.
The Borsa Istanbul banking index dropped 4.2 percent to 121,048.3 at the close in Istanbul, the lowest level since July 2012. Akbank TAS (AKBNK), the lender part-owned by Citigroup, Inc., retreated 4.9 percent and Yapi & Kredi Bankasi AS (YKBNK) declined 5.1 percent. The benchmark Borsa Istanbul 100 Index slid 4.7 percent to the lowest level since August last year.
The central bank will be “on the offensive” against currency weakness without using the “rates weapon,” Basci said in a televised interview with the state-run Anatolia news agency. The bank is planning to introduce new tools to fight lira depreciation, he said, without elaborating. The currency weakened as much as 2.1 percent to a record 2.0394 against the dollar.
“I don’t think investors are convinced this is the time for unorthodox central banking,” Julian Rimmer, a trader at CF Global Trading U.K. Ltd. in London, said in e-mailed comments. “The potential damage to growth prospects of an extended lira decline is profoundly discomforting.”
Turkish companies had $165 billion of foreign debt maturing within a year as of June, with banks accounting for $93 billion, according to central bank data. The lira depreciated 12 percent against the dollar this year, the second-worst performance among emerging markets in Europe, the Middle East and Africa, after South Africa’s rand. It slid 2.1 percent to 2.0377 a dollar at 5:44 p.m. in Istanbul.
The Ankara-based central bank raised its overnight lending rate by 50 basis points to 7.75 percent on Aug. 20, leaving the benchmark one-week repo rate at 4.5 percent. The decision came amid capital outflows from emerging markets on concern that the Federal Reserve will start paring monthly bond purchases of $85 billion as early as next month.
“The market probably has overreacted,” Hasan Demir, an analyst at Tera Brokers in Istanbul, said in a phone interview. “Considering where the multiples have retreated, we may have reached attractive prices for banks.”
Turkish banks trade at 6.9 times estimated 12-month earnings on average, according to data compiled by Bloomberg. That’s the lowest since January last year.
“Banks look cheap, but earnings estimates must be lowered to account for higher rates, inevitable non-performing loan formation and slower growth,” CF Global’s Rimmer said. “Investors will wait and see how the unorthodox monetary policy fares before committing capital to the sector.”
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