External Debt Stock of Private Sector in Turkey August 2016 Economic Research Division Our reports are available on our website https://research.isbank.com.tr
1 External Debt Stock of Private Sector in Turkey Gross external debt stock of Turkey rose from 269 billion USD in 2009 to 411.5 billion USD as of the first quarter of 2016. In the same period, gross external debt stock to GDP ratio also increased by 14.5 points and was realized as 58.1%. This development was mostly attributable to the surge in private sector s debt stock. While public sector debt stock to GDP ratio followed a more stable pattern during the said period, private sector s debt stock to GDP ratio rose to 41.2% from 27.9%. Regarding the maturity composition of Turkey s external debt stock, the share of long-term debt stock in total stock stood at 74.1% as of the first quarter of 2016. Total Gross External Debt Stock of Turkey (USD billion) 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1-16 TOTAL 250.0 280.9 268.9 291.8 303.9 339.7 390.2 402.4 397.9 411.5 Short term 43.1 52.5 49.0 77.2 81.6 100.2 130.3 131.6 102.4 106.6 Long term 206.9 228.4 219.9 214.6 222.3 239.5 259.8 270.8 295.4 304.9 Public Sector 73.5 78.3 83.5 89.1 94.3 104.0 115.9 117.7 113.3 118.2 Short term 2.2 3.2 3.6 4.3 7.0 11.0 17.6 17.9 14.6 17.6 Long term 71.4 75.1 79.9 84.8 87.3 93.0 98.3 99.8 98.7 100.6 CBRT 15.8 14.1 13.2 11.6 9.3 7.1 5.2 2.5 1.3 1.3 Short term 2.3 1.9 1.8 1.6 1.2 1.0 0.8 0.3 0.2 0.2 Long term 13.5 12.2 11.4 10.0 8.1 6.1 4.4 2.1 1.2 1.1 Private Sector 160.7 188.5 172.2 191.2 200.3 228.6 269.0 282.2 283.8 292.0 Short term 38.7 47.4 43.6 71.4 73.3 88.1 111.9 113.4 87.7 88.9 Long term 122.0 141.1 128.6 119.7 127.0 140.5 157.1 168.8 195.6 203.1 Source: Undersecretariat of Treasury Although Turkey's external debt stock to GDP ratio increased, during the same period the foreign debt interest payments to GDP ratio decreased significantly. This mainly stemmed from longer maturities thanks to the favorable global liquidity conditions as well as lower borrowing costs. 56.2 Gross External Debt Stock/GDP (%) 58.1 2.8 55.3 2.3 Interest Payments of External Debt/GDP (%) 43.6 1.8 1.7 1.8 1.7 1.6 1.7 35.5 39.5 37.9 39.3 1.2 1.1 1.2 1.2 1.2 1.3 2002 2005 2008 2011 2014 Source: Undersecretariat of Treasury 2002 2004 2006 2008 2010 2012 2014
2 As of May 2016, private sector s external debt stock (including other FX liabilities such as deposits) was 293 billion USD. 90 billion USD of this amount was in short-term while 203 billion USD of that were long term liabilities. It was noteworthy that 54.6% of total foreign exchange liabilities of private sector belonged to financial institutions, mostly to banks. Other Credits of Nonfinancial 3.4 Breakdown of Short-term External Debt Stock (USD billion, May 2016) Trade Credits of Nonfinancial 33.8 Financial 53.3 Breakdown of Long-term External Debt Stock (USD billion, May 2016) Nonfinancial 96.2 Financial 106.8 External Debt Stock of Private Sector By Borrower (May 2016) USD billion Financial Institutions Non-financial Institutions Total Share of Financial Institutions (%) Short-term 53 37 90 58.9 Long-term 107 96 203 52.6 Total 160 133 293 54.6 Having posted an open position of 3.6 billion USD in 2013, short-term net FX position of non-financial institutions has been placed on the positive side both in 2014 and 2015. According to data released by CBRT, open net FX position of non-financial institutions in Turkey stood at 183.7 billion USD at the end of 2015 while their short-term net FX position posted a surplus of 4.0 billion USD. Net FX position of non-financial institutions became 195.9 billion USD as of May 2016. In this period, although shortterm net FX position has turned negative, the size of the open position remained quite negligible. In addition, due to the fact that the personal FX assets of the company owners weren t taken into account in the compilation of the statistics, net FX position of the companies is assumed to present a more encouraging picture than the announced figures suggest. Net FX Position of the Non-financial Sector (USD billion) 2009 2010 2011 2012 2013 2014 2015 May.16 Assets 80.4 87.4 82.2 89.4 94.0 102.0 106.9 107.3 Liabilities 147.1 176.2 200.4 225.8 265.4 281.7 290.7 303.2 Net FX Position -66.8-88.9-118.2-136.4-171.4-179.7-183.7-195.9 Short Term Net FX Position 10.3 10.0-3.8-0.8-3.6 1.1 4.0-0.1 Analysis of the course of non-financial firms FX debts reveals that 66% of it is obtained from resident financial institutions as of May 2016. Moreover, considering the loans extended by foreign branches and affiliates of resident banks, the share of resident banks reached as high as 76.1%. Repayment process of outstanding loans seems unlikely to pose significant risks to the banking sector s balance sheet since all lending is secured by collateral.
3 Outstanding FX Liabilities of Non-Financial Sector by Lenders (USD billion) 2009 2010 2011 2012 2013 2014 2015 May.16 Resident Financial Corporations (I) 50.3 81.9 102.3 121.8 155.2 171.7 173.9 179.7 Foreign Branches and Affiliates of Resident Banks (II) 35.5 29.3 25.9 25.2 25.2 26.0 26.9 27.6 Total (I+II) 85.9 111.2 128.2 147.0 180.4 197.7 200.8 207.3 Total Loans (III) 131.9 158.1 180.0 203.3 237.3 253.6 260.8 272.4 Share (%) I/III 38.2 51.8 56.8 59.9 65.4 67.7 66.7 66.0 (I+II) / III 65.1 70.3 71.2 72.3 76.0 77.9 77.0 76.1 Assessments that no deterioration in asset quality is on the horizon, even in the presence of FX risks, find support from the current legislative framework in Turkey. In line with the current legislation on foreign currency loans, open FX position of corporates is driven mostly by large scale and exporting firms. This reinforces the resilience of firms against possible FX volatility. Among the firms with open FX positions, firms that do not have export revenues constitute only a small fraction. Besides, even if these firms do not have export revenues, they engage in projects related to sectors including tourism, construction and energy sectors that all have the capacity to generate FX revenues. Thus, although it is possible that a high FX volatility might have an adverse impact on the performances of some companies, no problem either in the repayment ability or in the balance sheet outlook of real sector firms is expected since a huge part of the firms that have FX debt also have directly FX or FX denominated revenues. 66 Non Financial Companies' Loans by Company Size (% share, May 2016) 87 Big Companies SMEs 50 50 34 13 Total Loans TRY Loans FX Loans Source: BRSA In this context, the last three years where FX rates experienced large fluctuations have been a good stress test for the Turkish firms. They sustained a strong performance and succeeded in this test as their debt roll-over ratios and loan repayments to resident banks did not show any sign of worsening during this period. According to the figures of Turkey s external financing needs in the coming 12 months, total FX liabilities stood at 167.9 billion USD in May 2016 of which 59.1% belonged to banking sector. Around half of the short-term FX liabilities of the banking sector was in the form of loans while the other half was non-residents deposits held in resident banks. Non-financial sector, which is classified as other sectors, had an FX liability of 63.3 billion USD. 34.1 billion USD of this amount was in the form of trade credits, which are issued directly for exporting and importing activities meaning that they are non-cash loans. We believe that the rest, worth of 29.3 billion USD categorized as other credits, is also quite manageable for the non-financial sector.
4 Short-Term External Liabilities on Remaining Maturity Basis (*) (May 2016) USD bn Share (%) Central Bank 1,1 0,6 General Government 4,2 2,5 Banks 99,2 59,1 Credits 50,2 29,9 FX Deposits 16,0 9,5 Bank Accounts 19,6 11,7 Branches and Affiliates Abroad 9,9 5,9 TRY Deposits 13,4 8,0 Branches and Affiliates Abroad 6,5 3,9 Other Sectors 63,3 37,7 Trade Credits 34,1 20,3 Other Credits 29,3 17,4 Public 0,1 0,1 Private 29,2 17,4 TOPLAM 167,9 100,0 (*) External liabilities maturing within 1 year or less regardless of the original maturity The size of short term FX liabilities of Turkey is commonly criticized on the grounds that it quintupled CBRT s net reserves. However, that the private sector has the bulk of the short-term FX liabilities of the country renders such a comparison invalid. In this sense, it would be a better approach to consider gross reserves instead of net reserves since gross reserves contain the reserves held by the banking sector. Indeed, as a result of the macro-prudential measures taken since 2012, banking sector holds nearly 40 billion USD of foreign exchange reserves at CBRT as a portion of their TRY reserve requirements through Reserve Option Mechanism (ROM). Apart from that, CBRT provides the banks with FX deposit limits of 50 billion USD. CBRT recently emphasized that, if deemed necessary, this facility could be improved. Therefore, when banks foreign exchange reserves under ROM and their foreign exchange deposit limits are taken together, the amount of foreign currency liquidity available for the use of the banking sector makes a total of nearly 90 billion USD, which roughly corresponds to the size of the sector s short term foreign currency liabilities. Against this backdrop, we anticipate that the banking sector will not face any difficulty in meeting its foreign currency liabilities.
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