Turkey

Banks with major exposures to Turkey were getting hammered after a loss of financial market confidence pushed the country towards a crisis at the beginning of the week. But analysts suggest that any fears of contagion into the European banking sector are overdone.

Within a fortnight, the Republic of Turkey is planning to announce “additional sources of financing” to fill a $2.5bn gap in its 2018 external bond funding plans, Berat Albayrak, the country's finance minister, said on an investor conference call on Thursday afternoon. Albayrak also said Turkey is not in talks with the International Monetary Fund (IMF) and ruled out capital controls.

The cost of buying credit default swaps on Turkish five year government debt has stopped its upward trajectory and eased lower, even as the country’s standoff with the US continues.

The collapse in the Turkish lira has stoked fears as to how the nation’s borrowers will repay their foreign currency debt just as the country's foreign exchange reserves are shrinking.

Turkey’s finance minister, Berat Albayrak, is holding an investor call at 2pm London time today. Over 5,000 participants are registered for the call and will be looking to see if the politician can bring calm to the crisis engulfing Turkish and wider emerging markets.

EM bond investors are watching Turkish banks closely, as some of the banks have heavy maturities falling due in the next year and capital ratios are being battered by the huge drop in the lira. But DCM bankers are telling these issuers that the lower levels may mean there are opportunities for buy-backs.

Good old fashioned contagion has led the worsening situation in the Turkish market battering the rest of emerging markets this week as a plummeting lira and spiking Turkish CDS levels spooked buyers across CEEMEA and Latin America. Even western Europe has been feeling the heat as investors start to fret about Turkish exposure.

Asia’s offshore bond market ran to a near stand-still this week, with just one issuer selling a dollar bond. While the typical summer lull is to blame for at least some of the quiet, bankers were divided on whether the crisis in Turkey has made things worse for Asian issuers.

Markets don’t like governments engaging in unnecessary economic self-harm, and after numerous warnings and cautions on its unsustainable economic policies, investors are now abandoning Turkey —Brexit Britain should beware.

The market chaos caused by investor panic over Turkey hit the shares of European companies this week, but the risk of a systemic crisis is low, said analysts.

The Turkish lira rebounded strongly on Tuesday morning in London while sovereign CDS rallied 40bp — but investors are still calling for more action and concerns remain high that without a big rate rise from the Turkish Central Bank, the selling will shortly resume.

The currency crisis in Turkey has prompted analysts to hone in on the balance sheets of European banks, as they look for the first signs of an increase in income volatility following the introduction of the new IFRS 9 accounting standard.