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UPDATE 2-Financing costs erased most profits of Turkish industrial firms - report

Ceyda Caglayan and Ali Kucukgocmen

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ISTANBUL, May 28 (Reuters) - Almost all the profits at Turkey's top 500 industrial companies were eaten up by financing costs in 2018 when a currency crisis tipped the economy into recession, the Istanbul Chamber of Industry (ISO) said on Tuesday.

Access to financing has become a "chronic problem" over the last few years and no improvement was seen last year, the ISO said in its annual report.

Overall, financing costs accounted for 88.9% of operating profits in 2018 for the big industrial firms, the group said. Only 381 of the 500 companies were profitable last year, down from 422 in the prior year, it added.

Manufacturers and other firms were among the hardest hit in last year's crisis, which saw the lira at its worst shed nearly half its value against the U.S. dollar. After years of booming growth built on cheap funding, the crisis left many firms unable to service foreign-currency loans while earning in lira.

"Any negative development in financial stability, extreme turbulence or volatility unfortunately damages our companies even if they protect themselves," Erdal Bahcivan, ISO board chairman, told reporters when asked about weakness in the lira.

The currency has lost 14% of its value against the dollar so far this year after having shed nearly 30% last year.

The ISO represents some 18,000 industrial companies based in Turkey's largest city and commercial hub. Some of the 500 big companies in the report are based elsewhere in the country.

Businesses and economists worry that re-running Istanbul's mayoral election could delay economic reforms. The March 31 vote was annulled and will be re-run on June 23 after an appeal from President Tayyip Erdogan's AK Party, which lost the initial vote.

Bahcivan said election-related uncertainty might dash the ISO's hopes that business conditions would improve after July.

The debt ratio of the ISO's 500 big industrial firms rose to 67% last year while their own capital ratio fell to 33%, the report said, calling this the "most negative" resource structure on record.

(Reporting by Ceyda Caglayan and Ali Kucukgocmen Additional reporting by Ezgi Erkoyun Writing by Jonathan Spicer Editing by Edmund Blair)