Turkey Companies See Lira Ruin After Basci Miss, Onatca Says - Bloomberg

The lira’s plunge has left Turkish companies struggling to service their foreign-currency debts as banks refuse to rollover loans, according to Suleyman Onatca, chairman of the Turkish Enterprise and Business Confederation.

“Companies indebted in foreign currency are ruined,” Onatca said in a phone interview from Istanbul yesterday. “This is an approaching disaster for small companies.”

The Turkish currency weakened as much as 2 percent against the dollar to a record low of 2.3029 yesterday. It slumped 2.6 percent against the euro. The central bank sold dollars in its first unannounced intervention in two years, citing “unhealthy price formations.” The amount sold was about $3 billion, HSBC Portfoy AS strategist Ali Cakiroglu said yesterday citing market participants.

A weakening lira is weighing on Turkish businesses, which had net foreign-currency debt of $166.7 billion as of October, central bank data show. The currency has depreciated 11 percent since a corruption scandal engulfed the government on Dec. 17, the worst performance among 31 major currencies tracked by Bloomberg, after Argentina’s peso.

Turkish companies took on foreign currency debt because it was “less costly,” Onatca said. “We’re businessmen and we need cheap loans,” he said, criticizing the central bank for providing a forecast last year on the level of the lira that it couldn’t achieve.

In an Aug. 27 interview with state-run Anatolia news agency, Central Bank Governor Erdem Basci said the lira could reach 1.92 per dollar at the end of 2013. “We’ll defend the lira like lions,” Basci said. The currency ended the year 12 percent weaker than that prediction at 2.1482 per dollar and has depreciated a further 6 percent since then.

“Banks aren’t willing to roll over loans,” Onatca said. They also have started to ask for more collateral from our members.’’

The Istanbul-based organization, known as Turkonfed, represents about 40,000 companies, mostly small- and medium-sized that Onatca says are “the arteries of the Turkish economy.”

The lira’s depreciation accelerated after a group of suspects including sons of cabinet ministers and the head of a state-run bank were arrested in a corruption probe last month. Prime Minister Recep Tayyip Erdogan blamed a “parallel state” within the police and the judiciary for attempting to overthrow him. Since then, thousands of police officers and dozens of judges and prosecutors have been removed from their posts.

The central bank kept its three main interest rates unchanged on Jan. 21, while saying it will raise funding costs for lenders on so-called “extra tightening days” to 9 percent from 7.75 percent.

Turkey “should not fear raising interest rates,” Onatca said. “We never thought political instability would go as far as this.”

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editor responsible for this story: Samuel Potter at spotter33@bloomberg.net