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Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
Foreign Exchange
Exposure of the NonFinancial Corporate
Sector in Turkey
April 2015
Economic Research Division
Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
During the last decade, Turkey has been successful in putting its fiscal house in order with bringing the
budget deficit under control. Nevertheless, ultra-expansionary monetary policies of major central
banks in the post-crisis era have increased global liquidity and enabled private sector in Turkey to
reach low-cost foreign currency funding. Thus, corporate sector raised FX funds either through directly
from abroad or domestic banks. This situation has resulted in increase in short FX position of the
corporate sector, specifically due to the steady rise in FX liabilities. However, rapid fluctuations in the
FX markets started to raise questions over the sustainability of external debt stock of private sector.
Here we will focus mainly on the Turkish case with analyzing the developments in FX debt stock, the
maturity structure of its debt portfolio and fundamentals that could provide some cushion against
external shocks.
External Debt Stock of Turkey
Gross external debt stock of Turkey rose from 269 billion USD in 2009 to 397 billion USD as of
September 2014. In the same period, gross external debt stock to GDP ratio also increased by 6
points and was realized as 49.6%. 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 34.4% from 27.9%, indicating a
noticeable change. Regarding the maturity composition of Turkey’s external debt stock, it was seen
that the share of long-term debt stock in total debt stock stood at 67% as of September 2014.
Table1: Gross External Debt Stock of Turkey
(bn USD)
2009
2010
2011
2012
2013
2014Q1
2014Q2
2014Q3
Total
396.8
268.9
291.9
303.9
339.0
389.5
388.3
402.0
% of GDP
43.6
39.9
39.3
43.1
47.4
48.1
50.3
49.6
Short-term
49.0
77.2
81.6
100.2
130.5
125.8
131.8
131.9
Long-term
219.9
214.7
222.3
238.8
259.1
262.5
270.2
264.9
Public Sector
83.5
89.1
94.2
104.0
115.9
117.1
119.4
118.6
% of GDP
13.5
12.2
12.2
13.2
14.1
14.5
15.0
14.8
Short-term
3.6
4.3
7.0
11.0
17.6
17.8
18.2
18.9
Long-term
79.9
84.8
87.2
92.9
98.3
99.3
101.3
99.7
CBRT
13.2
11.6
9.3
7.1
5.2
4.9
4.3
2.9
% of GDP
2.1
1.6
1.2
0.9
0.6
0.6
0.5
0.4
Short-term
1.8
1.6
1.2
1.0
0.8
0.8
0.7
0.4
Long-term
11.4
10.0
8.1
6.1
4.4
4.1
3.6
2.5
172.3
191.3
200.3
228.0
268.4
266.3
278.3
275.2
% of GDP
27.9
26.1
25.9
29.0
32.7
33.0
34.8
34.4
Short-term
43.6
71.4
73.3
88.2
112.1
107.2
113.0
112.5
Long-term
128.7
Source: Undersecretariat of Treasury
119.9
127.0
139.8
156.4
159.1
165.3
162.7
Private Sector
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Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
Loans Received From Abroad By Private Sector
Long term total loans received from abroad by private sector reached 167.5 billion USD at the end of
2014, indicating nearly 40 billion USD increase in comparison to the end of 2009. This surge wholly
stemmed from the rise registered in external borrowing of financial sector. Indeed, non-financial
sector’s long term external loans stayed flat in this period.
Table 2: Outstanding Long Term Loans Received From Abroad By Private Sector - By Borrowers
(bn USD)
TOTAL
I- Financial
i- Banks
- Loans
- Bonds Issued
ii- Nonbank Financial Corporations
- Loans
- Loans Received From Parent Companies and Affiliates
- Bonds Issued
II- Non-financial
- Loans
- Loans Received From Parent Companies and Affiliates
- Trade Credits
- Bonds Issued
Source: CBRT
2009
128.6
45.3
28.2
28.2
0.0
17.1
17.0
0.1
0.0
83.3
77.3
5.6
0.5
0.0
2010
119.8
41.4
28.7
27.7
1.0
12.6
12.5
0.1
0.0
78.4
72.0
5.6
0.6
0.2
2011
126.9
48.1
34.9
31.6
3.3
13.2
13.0
0.3
0.0
78.7
72.9
5.3
0.3
0.2
2012
139.7
57.2
41.8
31.3
10.4
15.4
15.1
0.3
0.0
82.5
74.9
5.8
0.4
1.4
2013
156.0
73.0
54.8
38.8
16.0
18.2
16.4
0.3
1.5
82.9
73.4
5.9
0.3
3.3
2014
167.5
84.9
66.1
44.6
21.5
18.7
15.3
0.4
3.0
82.6
72.2
5.1
0.3
5.0
Short term loans raised from abroad by private sector amounted to 44.4 billion USD as of December
2014, reflecting an increase of 37.8 billion USD compared to the end of 2009. According to the
classification by borrowers, it was observed that financial sector accounted for 94%, non-financial
sector accounted for just 6% (only 2.8 billion USD) of total short term loans obtained from abroad by
private sector.
Table 3: Outstanding Short Term Loans Received From Abroad By Private Sector - By Borrowers
(bn USD)
Total
I- Financial
i- Banks
- Loans
- Bonds
ii- Nonbank Financial Corporations
- Loans
- Loans Received From Parent Companies and Affiliates
- Bonds
II- Non-financial
- Loans
- Loans Received From Parent Companies and Affiliates
- Bonds
Source: CBRT
2009
6.6
5.9
5.7
5.7
0.0
0.3
0.3
0.0
0.0
0.7
0.6
0.0
0.0
2010
19.0
18.0
17.0
17.0
0.0
1.0
1.0
0.0
0.0
1.0
1.0
0.1
0.0
2011
24.9
23.5
22.2
22.2
0.0
1.3
1.3
0.0
0.0
1.4
1.4
0.0
0.0
2012
30.6
28.1
26.3
26.2
0.0
1.9
1.9
0.0
0.0
2.5
2.4
0.1
0.0
2013
41.5
38.8
36.4
35.0
1.5
2.4
2.4
0.0
0.0
2.6
2.6
0.0
0.0
2014
44.4
41.7
39.6
35.8
3.9
2.0
2.0
0.0
0.0
2.8
2.7
0.1
0.0
Net FX Position of Non-Financial Companies
Turkey’s non-financial firms’ net FX position is probably the most cited risk factor recently. It is
asserted that the depreciation in TL would cause damage to balance sheets of firms which have
significant exposure to FX fluctuations and even result in bankruptcies which will increase the risk of a
Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
systemic crisis in the economy. Although it is true that depreciation of TL will adversely affect firms’
balance sheets to a certain extent, it is thought that the magnitude of the damage would be
manageable due to several factors.
The net FX position of the non-financial firms reached -183.2 billion USD as of December 2014. It is
worth mentioning that only 12.8 billion USD (7%) of this outstanding amount was short-term and the
rest was long-term debt, mainly related to the project finance activities. In addition, it is important to
note that firms started to reduce their short-term net FX position since mid-2013. In fact, as of June
2013, the short-term net FX position of non-financial firms was as high as -20.9 billion USD. 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, the announced figures may not precisely reflect the net FX
position of the companies. It is also known that short-term FX liabilities of the firms include export
financing loans which will generate FX revenues.
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Graph 1: Net FX Position of the Non-financial Sector
(bn USD)
2,3
0
-50
-100
-73,1
0,9
-14,3
-12,2
-108,5
-127,9
-12,8
-17,1
-93,2
-70,7
-159,2
-170,5
-92,4
-122,8
-150
Long Term Net FX Position
-200
-250
-140,1
Short Term Net FX Position
-176,3
-183,2
2013
2014
Total Net FX Position
2009
2010
2011
2012
Source: CBRT
Analysis of the FX liabilities of non-financial companies revealed that the majority of the FX debt was
raised from banks, mainly from domestic banks. As of December 2014, funds received from financial
corporations constituted 90% of the total FX liabilities of the non-financial companies and rest was
import payables.
300
Graph 2: FX Liabilities of Non-financial Companies
(bn USD)
28
28
250
23
200
20
18
150
15
100
82
77
50
50
78
82
83
81
82
102
122
2010
2011
2012
155
172
2013
2014
0
2009
Import Payables
Source: CBRT
External Loans
Domestic Loans
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Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
68% of the total FX loans of non-financial companies were obtained from resident banks. Moreover,
considering the loans raised by foreign branches and affiliates of resident banks, the share of resident
banks reached as high as 78%. Composition of non-financial companies’ FX loans has changed in
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favor of resident banks since 2010 as a result of the amendments made by the CBRT in Decree
No.32 which made it possible for Turkish companies to acquire FX credits from domestic banks.
Furthermore, it is noteworthy that FX loans extended by resident banks are subject to strict
underwriting rules and most lending is secured by collateral. In this regard, the repayment of
outstanding loans seems unlikely to pose significant risks to the banking sector’s balance sheet.
Furthermore, current legislation on foreign currency loans in Turkey does not allow small firms without
foreign currency income to accumulate debt in foreign currency. Hence, firms with open short term FX
position are generally large-scale firms either having a significant amount of export revenues or
dealing with projects which have potential to generate FX revenues. Large corporates also have the
ability to use hedging instruments in the case of high volatility in the FX market. This enhances the
solidity of Turkey’s real sector against exchange rate fluctuations.
Table 4: Outstanding FX Liabilities of Non-Financial Sector by Lenders
(bn USD)
2009
2010
2011
2012
2013
2014
Resident Financial Corporations (I)
50.3
81.9
102.3
121.8
155.2
171.5
Foreign Branches and Affiliates of Resident Banks (II)
35.6
29.2
25.8
25.1
25.1
25.8
Total (I+II)
85.9
111.1
128.1
147.0
180.3
197.4
132.5
158.4
180.2
203.3
238.0
253.3
I/III
38.0
51.7
56.8
59.9
65.2
67.7
(I+II)/III
64.8
70.1
71.1
72.3
75.8
77.9
Total Loans* (III)
Share (%)
(*) Trade loans excluded.
Source: CBRT
Table 5 provides figures for Turkey’s external financing needs in the coming 12 months, in other words
it shows the amount of FX liabilities maturing within 1 year or less regardless of the original maturity of
the debt. Accordingly, the short term FX liabilities of Turkey were 166.8 billion USD at the end of 2014.
The share of Central Bank and General Government in this amount was very low with 0.8% and 3.0%,
respectively. However, banks had 107.5 billion USD short-term liabilities, having a large share (64.4%)
in total short-term external debt. We think that banking sector will not face any difficulty in rolling over
its FX liabilities thanks to prudent FX positions, high capital adequacy ratios and sound asset quality.
For example, during 2013, despite the heightened volatility in markets, banking sector’s long-term
foreign debt rollover ratio was high with 196%. The said ratio also kept its level at 190% as of
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Decree No.32 (law regarding the protection of the value of Turkish currency) provides the framework of foreign exchange
legislation. With amendments in March and June 2009, residents are allowed to obtain FX and FX indexed credits with at least
one year maturity and a minimum amount of 5 million USD from domestic banks and the use of foreign exchange and foreign
exchange‐indexed credits for commercial and professional purposes are permitted. Also, the use of foreign exchange indexed
consumption credits and mortgages is prohibited.
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Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
December 2014. In addition, as a result of the strict regulations of the banking authority in Turkey,
banks’ short position in FX is at negligible levels.
Short term FX liabilities of other sectors were recorded as 53 billion USD with a share of 31.8% in total
short term FX liabilities of Turkey. More than half of this amount was trade credits; the rest was other
credits amounting to 21 billion USD. Most of this amount was the FX loans raised from domestic
banks. We believe that this amount of repayment in the next 12 months is quite manageable for firms.
Table 5: Short-Term External Liabilities on Remaining Maturity Basis* (By Borrower)
December 2014
(bn USD)
Share (%)
Central Bank
1.4
0.8
General Government
4.9
3.0
Banks
107.5
64.4
Credits
59.8
35.9
FX Deposits
13.1
7.9
Bank Accounts
21.1
12.7
11.6
7.0
13.4
8.0
6.4
3.8
Other Sectors
53.0
31.8
Trade Credits
32.0
19.2
Other Credits
21.0
12.6
0.2
0.1
Branches and Affiliates Abroad
TRY Deposits
Branches and Affiliates Abroad
Public
Private
Total
20.9
12.5
166.8
100.0
(*) External liabilities maturing within 1 year or less regardless of the original maturity.
Source: CBRT
According to a research conducted by CBRT, a bulk of real sector firms was not exposed to exchange
rate risk at all. In particular, 63% of real sector firms did not have FX debt as of December 2013. This
ratio was at 67% in small and medium enterprises (SMEs) and at 43% in large firms. A considerable
part of the firms with FX debt had export revenues that exceeded their FX debt. Hence, export
revenues provided a natural hedge against exchange rate fluctuations. Those firms with FX debt that
was higher than their export revenues had moderate levels of FX debt to exports ratio and this leaded
to positive assessments on the issue. Those firms with FX debt that was higher than their export
revenues, albeit having moderate levels of FX debt to exports ratio, were also regarded as safe in the
current conjuncture. Firms that had FX debt and no export revenues accounted for only 12% of all real
sector firms. Besides, they were also considered to have other type of FX revenues as most of them
operated in tourism, construction and energy businesses.
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Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
Graph 3: Distribution of Firms with Different FX Loans/Exports Ratios
Figures show the percentage of firms with different FX loans to Exports ratio (x).
Number of firms is 9,468.
Source: CBRT
Even though there is always a possibility that some relatively fragile real sector firms may be adversely
affected by sharp fluctuations in the exchange rates, that most of the real sector firms have foreign
currency revenues pointed out that a systemic risk would not be the case and therefore a deterioration
in balance sheet and repayment performance of the firms is not anticipated.
In this framework, the year of 2014 has been a good test for Turkish economy. Debt roll-over ratios
and residents’ loan repayments did not show any sign of a worsening outlook during this period.
Therefore, it is reasonable to think that banks have passed this test successfully and have the
potential to weather new storms at least in short and medium term.
On the other hand, although recent depreciation in TRY may not threaten the sustainability of FX
liabilities, it may put pressure on the financial results of the companies which have relatively high
short-positions, by limiting the profitability of the related companies. But for short-term liabilities, due to
the depreciation in TRY, total burden on corporates is expected to be less than 2 billion TRY in the first
3 months of 2015.
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Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey
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