Where is the Turkish economy heading after the elections?

Where is the Turkish economy heading after the elections?

Ankara, June 12, 2015/ Independent Balkan News Agency

In 2001 the economy head gone bankrupt with a coalition government

The devaluation of the lira and the estimates

Huge consumer and housing loans with a single SMS

Rapid increase of “red” loans

By Manolis Kostidis

The government gap in Turkey that has resulted from the parliamentary elections on June 7 causes deep concerns. With the announcement of the results, the Turkish lira was depreciated by 5% against the euro and the dollar, creating inflationary pressures. The lira has been depreciated by 18% in the past six months, which causes pressure on the market. The business world had been accustomed to the stability of the 13-year governance of the AKP, and a potential coalition government does not sit well, given that the Turkish economy in 2001 had bankrupted with a three-party coalition government, among which were the two opposition parties, the CHP and MHP, which might now cooperate with the AKP.

The problem of the Turkish economy is not the public sector. The AKP government, by faithfully implementing the programme the IMF had imposed in 2002 managed to reduce the public debt to 36% of the GDP, while at the same time balancing the budget.

What worries the financial analysts, however, is a possible turmoil in the banking system, due to the excessive foreign currency loans granted to individuals and businesses.

Loans with a message from the cell-phone

“Send message to (…) number to grant you a consumer loan within minutes”. These TV commercials play on the turkish television daily, as banks give loans without any particular restrictions.

Turkish citizens in 2002 owed 6.2 billion lira to banks for mortgages, consumer loans and credit cards. This amount in 2014 skyrocketed to 333 billion! A large part of these loans is linked to the exchange rate, since any surcharge increases the percentage of “red” loans.

40% of these loans are mortgages and is the main reason behind the growth of the turkish economy in recent years.

Deputy Prime Minister Ali Babacan, who is responsible for economic policy, has expressed his reservations for the distortion in the market and has announced a program for turning the Turkish market towards production growth.

In 2009, 444,000 Turkish citizens were in the “black lists” of the banks for not being able to meet their obligations. At the end of 2013 that number soared to 3 million people.

Similar is the situation of turkish companies. According to the report of the Central Bank of Turkey, the assets of Turkish companies (excluding financial) is USD 97 billion, while their debts reach USD 275 billion. An amount that is up to 24% of Turkey’s GDP. Short-term liabilities reach USD 88 billion. The devaluation of the turkish lira weights heavily on many companies, mainly SMEs, that are not protected in any way by changes in exchange rates.

Many analysts point out that the turkish economy experienced rapid growth due to these excessive bank lending and warn that if the number of red loans continues to rise, it would threaten to cause turmoil in the banking system.

Foreign investors are withdrawing from the turkish market?

HSBC announced its decision to withdraw from the Turkish market after its presence in the country for 15 years. There reasons behind this withdrawal are unclear. The Bank has announced that it is negotiating with three banking groups.

At the same time, Turkish tycoon, Ferit Sahenk, who has invested in marinas in Greece, decided to sell his bank “Garanti” to the Spanish BBVA. Garanti is the largest private bank in Turkey.

Sahenk’s Dogus Group, now has 10% stake while the Spanish 40%.

Citibank has also decided to sell its share to the turkish bank “Akbank” and leaves the turkish market.