Eyes on Turkey banking sector as central bank governor quits
As news comes of the resignation of Turkey’s central bank governor, Gazi Ercel, market attention focuses on the banking sector’s struggle to survive the latest crisis.
He added that one particular bank in trouble is of the same size as Demirbank - whose insolvency caused the last banking crisis, in November last year.
Although he declined to name the bank, he added: "Everything is being taken care of for that player - the republic cannot afford its failure because of the change in market perception it could cause."
Ziraat Bankasi, Turkey's biggest bank by assets, owning 20% of all deposits, was on Friday downgraded by Standard and Poor's (S&P) to CCC+ from B, as part of a host of actions in response to the crisis by the rating agency.
The crisis has passed its most intense phase, with overnight rates returning to the relatively healthy 100%-150% range, down from highs that nearly touched 10,000%. The change of guard at the central bank is also accompanied by an easing of liquidity for troubled banks.
But banks may still phase a run on their dollar deposits. About 50% of deposits are dollar denominated, and a loss of confidence in solvency by private savers is pulling the rug out from under the feet of many otherwise sound banks.
A string of bank failures would damage more than just market confidence in Turkish sovereign debt. Turkish banks play an important part in syndicating Turkish borrowings, as well as holding a large amount of Turkish dollar denominated debt on their own books.
On top of this, S&P downgraded Turkey to B from B+, still on negative CreditWatch, in response to the crisis. As well as Ziraat Bankasi the ratings agency also downgraded Turkcell and Vestel.
The investment banker added that government's most important moves now will be to reassure markets through a cabinet reshuffle and an inventory of public finances.
"Ercel's move should provoke other movements along the chain," he said. "What the country does not need now is new elections - the market wants stability.
"As far as macroeconomics are concerned, it is assumed the government will still keep to the IMF programme reforms and targets as closely as possible. But we need to know how much money is now additionally needed."
There has been speculation that Erkan Kumcu may make a return to the central bank as its new head.