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Turkish banks: It's complicated

  • Governor of the central bank replaced over the weekend

  • The news had a negative impact on Turkish assets, but the lira appears to have recovered as the day progressed

  • We highlight five points of interest below

Turkish banks: It's complicated
Tolu Alamutu
Tolu Alamutu

Credit Research Analyst, Banks

Tellimer Research
8 July 2019
Published by

There really is never a dull moment in Turkey. As has been widely reported, Murat Çetinkaya lost his role as Governor of the Central Bank of the Republic of Turkey (CBRT) over the weekend. He was replaced by his deputy, Murat Uysal. Unsurprisingly, the news has had a negative impact on Turkish assets. However, the Turkish lira appears to have recovered – in part – as the day has progressed. 

Here are five points we think may be of interest:

  1. As Bloomberg highlighted in an article published earlier today, central bank independence is under threat in many other jurisdictions. Turkey isn’t alone. 
  2. Given President Recep Tayyip Erdogan’s much-discussed disdain for high interest rates, the decision to replace a CBRT governor that has kept the key 1-week repo rate at 24% for some time, probably isn’t completely surprising.
  3. What is a little puzzling is the timing, given that a rate cut appears to have been anticipated later this month. The next 1-week repo announcement is expected on July 25. Latest inflation data showed that the yoy change in CPI was 15.72% in June, down from 18.71% in May and over 25% in October 2018. As real rates have climbed, expectations for a rate cut at the next CBRT meeting have also increased. In addition to this, at the start of this year, management at a number of major banks in Turkey indicated that rates were expected to fall in H2 19.
  4. Other risks are emerging. Following the change in CBRT Governor, it has been reported that former Deputy Prime Minister, Ali Babacan, has resigned from the AK Party, due to ‘differences over key policies’. There had been speculation about this for some time, with at least one report saying a breakaway party may be formed. There’s little detail about the potential new party – it’s not yet clear if the group will pose a credible threat to Turkey’s ruling AKP. 
  5. Meanwhile, preparations for the delivery of military equipment from Russia are continuing, according to Erdogan. His latest remarks were made following a telephone conversation with Russian President Vladimir  Putin. As we have discussed before, following the G20 Summit, it is not fully clear how US authorities may react to the delivery and/or activation of this military equipment. 

For more on Turkish banks, see our latest reports below: