Turkey

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: given the high cost of hedging (70% to 80% annualised), most participants have....
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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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