Turkey:Wake Up to Rising Economic Risks - by Wolfango Piccoli
Despite its large parliamentary majority and past pragmatism, the government led by Turkey's Justice & Development (AKP) party has remained essentially idle as the country faces the dual challenges of a slowing domestic economy and a global credit crunch. A risky sense of overconfidence and lack of focus on economic issues seems to prevail among policymakers. The Turkish banking sector appears relatively shielded from global liquidity problems. This is mainly thanks to reforms introduced after a 2001 banking crisis, including the creation of a bank regulatory and supervision agency and strengthened requirements for risk management, internal control, and auditing. Regulators say the banking system at the end of July had a healthy capital adequacy ratio of about 17% overall, while the loans-to-deposit ratio was 86.8%.
However, there are still risks to watch for. Foreign exchange liabilities of Turkish corporations to local banks had reached $39.42 billion as of March 2008. Local banks' gross debt to banks abroad stood at about $45 billion at the end of the first quarter. Credit-card default risk is another worry. Individual consumer credit-card debt is $26.9 billion, and the default rate is around 6.3%.
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