— This is the script of CNBC's news report for China's CCTV on August 13, 2018, Monday.
Turkish currency crisis not only affect Turkey, but also other countries. In the market, this kind of risk spillover effect and sentiment has shown under the circumstance that Lira depreciated for around 20% last week. First is the economy effect brought from the imports and exports of some trading partners.
This chart shows the proportion of Turkish exports accounts for total exports till the end of last year, we can see that the top 5 are Iran, Russia, United Arab Emirates, Switzerland and Italy. Therefore, when Turkish Lira depreciates fast and faces bankruptcy, those countries who export to Turkey will face a huge risk of lower demand, and that will hurt the economy that has close trade relations with Turkey.
Banks that have related Turkish debt, however, will face a bigger risk, because the risk exposure of those overseas banks will increase significantly. In the 1st quarter this year, Turkish debt was as high as USD466.7, accounting for 52.9% of GDP. In the first half of the year, US interest rate hikes and the firm of the US dollar further push up Turkey's debt service cost. Turkey central bank has raised interest rates for many times in order to stable lira exchange rate.
Now, Lira exchange rate plummeted, concerns about the debt risk of major European banks in Turkey have warmed up. According to the data from BIS, the amount claimed by foreign banks for Turkey is about $220 billion till the end of the 1st quarter.
Banks in Spain and France have the highest foreign debt in Turkey, accounting for 36% and 16% in overseas banks, reaching $83.3 billion and $38.4 billion, followed are banks in Italy, US and UK, accounting for 8%, involving around$17 billion. Additionally, banks in Germany and Japan have 6% and 5%.
Till now, even though the risk is warming up, the euro has been dragged down and related banking stocks also face a declined stock price, the risk exposure is still under control in general according to the feedback from different aspect. However, it is also possible that if Turley break the rule, some credit institution will be in dilemma.
[VASU MENON, VP, Group Wealth Management, OCBC Bank] "Asian fundementals are a lot better today than they were in 1997, 98, even a few years ago.
I think Turkey is not that big to some of these major currencies, especially here in Asia. I mean, the Turkish economy is very small, relative to the world economies. It will create some nervourness, Asian currencies may weaken but they wont fall off the cliff."
One of the more worrying situations is how will the event develop? So Lira's following trend and the relationship between Turkey and US are important. If the situation continue to get worse, and that result in some investors reduce their investment in emerging market, then, such negative linkages may produce amplification effects. We will keep an eye on this issue.