Depending on external finance has been the case for almost any emerging market, but in Turkey it is life-sustaining given the country’s external balance profile, which has always had a bad title due to being an energy importer and demographics that fuel consumption.
Speaking of external balance, Turkey is also known for its banks’ ability to provide foreign borrowings as syndication loans for a while has been the most important source for banks to finance the growth. To cut a long story short, we present the following which shows the relationship between FX denominated asset growth in banks and GDP growth. For the period we analyze, an average GDP growth rate of 4.6% was calculated and each series of multiple quarters with growth rates above that was assumed to be the below par economic activity period, also shown in red areas.
Shortly, Turkey has been increasingly dependent on foreign cash flows, and the situation is touch-and-go, and, for sure we will see banks downsizing their balance sheets in FX terms.