Turkey

Corporate Treasury & FX in Turkey

Report date: 
24 Oct 2024

Commentary

Turkey has been in some form of economic crisis for a long time. CXC discussions on it always highlight the many challenges: high inflation, funding issues, FX shortages etc. At the same time, there has always been an array of workarounds: the country typically avoids official regulatory measures. For example, there have never been official exchange controls – it was just that banks had very limited access to foreign currency, and had to prioritise their customers.

Last year, following the elections, Turkey adopted some very conventional – and painful – economic policies. The currency devalued by 35% between June and July 2023 – from 19 to the USD to 26. The benchmark interest rate was fixed at 50%. Prior to this, there had been a series of unconventional measures: official interest rates were low, but banks were required to buy bonds issued by the Turkish government for between 60% and 200% of the value of any loan they made, effectively killing the loan market. With the new measures, the situation seems to have stabilised: foreign currency is now freely available, the exchange rate continues to decline, but is more stable. It is now significantly less difficult to obtain local funding. Inflation has reduced: it was at about 85%: it is now closer to 30%.

Interestingly, three other countries which have been in very difficult positions have adopted similar austerity measures: Argentina, Egypt and Nigeria have all been through significant devaluations and greatly increased interest rates. This leads to short term economic contraction, but seems to be having positive results for the fundamentals.  

How has this affected business and the people? The consensus on the call was that the situation was difficult, but improving. Some participants were wondering whether they should change their business model to reduce the risk, but all feel it is a country and an economy which is too important to ignore.

Specifics:

  • Cash management operations have been normalised. One participant has excess foreign currency, which they place in an offshore bank account in Abu Dhabi – this process has been in place for some time.
  • Banks are once again willing.....
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Topics covered in this report: 
Funding, Intercompany loans, FX, Hedging FX, Working Capital, Banking, Bank Relationships
Service providers discussed in this report: 
Deutsche Bank, BNP Paribas, Citi, TEB, HSBC, FXall

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Turkey Corporate Treasury Update

Report date: 
20 Nov 2023

Commentary

Turkey is a challenging environment – but it works. Inflation is around 85%, the currency is depreciating rapidly and very expensive to hedge, and funding is regulated and very hard to obtain. Two years ago, restrictions were placed on the remittance of dividends, though today, those restrictions have been lifted and there are no formal exchange controls. 

Despite all this, participants on our call generally reported growing businesses, with positive results.

The main challenges:

  • Overdrafts are not available, or they are prohibitively expensive. This is not new: the country has always imposed cost penalties on short term borrowing. The central bank now requires a reserve deposit for all loans: one participant said this was 60%, while another reported 200%. Either way, this has effectively made local loans all but impossible.
  • One way of satisfying reserve requirements is to purchase Turkish government T-bills. No foreign bank is prepared to do this, so funding via international core relationship foreign banks is no longer possible. Local banks are generally also reluctant to lend: the few exceptions are government owned banks.
  • Bank deposits in foreign currency hardly receive any interest; local currency ones attract interest at around 30%, against an inflation rate of about 85%.
  • Given this, and given the high rate of inflation, there is a lot of pressure on working capital: customers are seeking longer payment terms, while suppliers are looking to be paid early. One participant has sought, without success, to put in place supply chain financing solutions.
  • Most participants manage to run their businesses with no debt. Cross border intercompany
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Topics covered in this report: 
Bank Relationships, Hedging FX, Funding, Cash Pooling - cross border, Cross border sweeping, Dividends
Service providers discussed in this report: 
BNP Paribas, Deutsche Bank, Citi, HSBC, TEB, ING, Yapi Kredi

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FX & Treasury in Turkey

Report date: 
29 Nov 2022

Commentary

Europe meets Asia in Istanbul – and Turkey is very much at the crossroads when it comes to a lot of the cultural, geopolitical and even military issues which are currently roiling the world. Despite all the turmoil, Turkey remains a relatively open and thriving economy, and it is a significant market in its own right for several participants.

Turkey has been struggling for several years with a high inflation rate, and this is causing issues for all the participants. Despite this, business seems to continue and be reasonably healthy for all of them. The high inflation rate causes a series of problems, but all participants are able to fund their businesses and repatriate cash. The challenges:

  • High interest rates, though these have now fallen to a little over 10%
  • Inflation officially at 85% - but unofficial estimates are up to 150%
  • Scarcity of bank funding: given the above, it is not surprising that banks are not willing to lend – especially as the central bank now requires a deposit of 30% of the amount lent, at 0% for the first 30 days.
  • Some participants have moved to cross-border intercompany funding, onshore intercompany loans between entities, and equity, as required.
  • One participant is looking at cross border intercompany funding from a subsidiary in a third country which has excess cash. The documentation is proving very challenging.
  • Accounting: officially, Turkey has hyperinflation (over 100% in the last three years), which means the HQ’s currency has to be used as the functional currency for accounting, under both IFRS and US GAAP.
  • Hedging:
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Topics covered in this report: 
Inflation, Pricing, Hedging FX, Funding, Bank Relationships, Payments - cross border, Collections - domestic
Service providers discussed in this report: 
BNPP, TEB, Garanti BBVA, HSBC, Citi

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FX & Treasury in Turkey

Report date: 
2 Jun 2021

The current situation in Turkey has all the hallmarks of the situations treasurers typically face in complex countries: political uncertainty, fast changing regulations, difficulty repatriating cash, FX volatility, high interest rates, liquidity issues, unexpected tax increases, etc, etc. In addition, the country has borders with one of the world’s most volatile regions, and it relies heavily on tourism, with the associated impact from COVID 19.

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