Geo-political tensions, including a widening rift between the U.S. and Turkey, along with Erdogan’s grip on monetary policy are upping the stakes for Eurozone’s banks in Turkey.
On Friday, with the Turkish Lira registering yet another record low against the U.S. dollar, concerns of the exposure of Eurozone’s banks to Turkey have escalated.
The chief concerns for the European Central Bank is the exposure of BNP Paribas, BBVA, and UniCredit to the Turkish economy since although their operations are among the largest in Turkey, their Turkish operations contribute only modestly to the overall balance sheet.
Growing concerns regarding Turkish President Tayyip Erdogan’s grip on monetary policy under a powerful new executive presidency along with a widening rift between the United States and Turkey have contributed to a prolonged slide of the Turkish Lira.
According to a report from the Financial Times, a supervisory review by the ECB does not see the issue being so critical; nevertheless, it is concerned since borrowers may not be hedged against the lira’s weakness. This is a worry since foreign currency loans make up around 40% of the Turkish banking sector’s assets, said the FT.