Turkey Said to Plan Hedging Rule to Limit Corporate FX Risk

  • Measure to apply to about 2,000 companies, people familiar say
  • Govt also weighing higher requirements for banks’ FX lending

Turkey is planning new measures to tackle the potential risk from the $300 billion in foreign-currency debt held by private companies, according to two people familiar with the discussions.

Plans include requiring non-financial companies with more than $15 million in foreign-currency debt to hedge their risk, said the people, who asked not to be named because the information wasn’t public. Companies with smaller holdings will also face limits on how much foreign-exchange credit they can receive from banks, they said. The measures were discussed June 13 at a Financial Stability Board meeting led by Deputy Prime Minister Mehmet Simsek.

Turkey’s reliance on external funding is among its economy’s biggest weaknesses, and the government and central bank have rolled out a string of policies to bolster the lira and reduce private companies’ demand for dollars since the currency tumbled to a record low against the greenback in January. Non-financial companies’ foreign-currency liabilities exceeded $304 billion in March, with short positions accounting for nearly $200 billion -- equivalent to about 23 percent of Turkey’s gross domestic product.

The lira swung from a gain to a loss on the news, trading down 0.1 percent to 3.5058 per dollar at 1:37 p.m. in Istanbul. That trims this year’s advance to 0.5 percent, according to data compiled by Bloomberg.

“Mandatory hedging will reduce companies’ financial fragility in the long term,” Fatih Keresteci, founder of independent consulting firm DNG Advisors in Istanbul, said on Twitter on Monday. But the measure should be spread over time because it could lead to significant foreign-currency demand in the short term, he said.

The Treasury Undersecretariat in Ankara declined to comment on Monday.

Turkish regulators have so far collected data on the 100 most FX-indebted companies. The hedging requirement would apply to about 2,000 private companies that account for an estimated 80 percent of the private sector’s foreign-exchange debt, the people said. The government may also introduce higher provisioning for commercial banks’ FX lending to those companies.

Policy makers also plan to limit foreign-exchange credit to smaller companies to their FX revenues. The latter measure applies to about 20,000 companies.

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