Goldman: Turkey presents foreign currency liquidity risk

SAFAKNA TURKEY – Economists at Goldman Sachs said FX liquidity risks have shifted from the private sector to Turkey’s public sector and said: needs to be managed in a timely manner.

A March 1 report written by bank economists Clemens Grafe and Basak Edizgil discussed the risks to the foreign exchange positions of government agencies, including the Central Bank.

The report, which said: “Currency exposure of private companies has declined significantly and extreme risk levels have returned to their previous level, removing additional vulnerabilities,” says: “However, instead of disappearing, the risk has shifted to the public. sector”.

“Traditional net financing is almost over”

In the report, “The increase in open foreign exchange positions in the public sector was higher than the decrease in open foreign exchange positions of companies. In this case, the continuing increase in the share of household savings in foreign currency was effective.

Economists who opined that “we believe that the structure of open currency positions creates more problems than their size”, explained this by the fact that the counterparty is domestic investors, not foreign investors.

According to the report’s assessment, this is especially true for FX-protected CBR deposits and swaps with banks, but even foreign-currency-denominated government bonds are owned by domestic investors.

According to economists at Goldman Sachs, traditional net financing (mainly repo transactions) has virtually disappeared, and swaps have become by far the largest source of CBR liquidity financing for banks.

In the report, economists stated that the additional risk arising from the nature of currency risk is related to its short-term nature, that both swaps and currency-protected deposits have maximum maturities, therefore, there are significant liquidity risks if these two markets are unstable.