Market turmoil tests the mettle of Turkey’s banks

Duncan Kerr
Published on:

For all their strengths, the ferocity of this summer’s market sell-off has amplified some vulnerabilities that could be the first true test in a decade of the resilience of banks and the economy as a whole.

The anti-government demonstrations that first erupted in Istanbul before spreading throughout much of Turkey have died down, but the Turkish authorities are now engaged in a very different battle for stability.

Since May, the country has been engulfed by one of the fiercest market sell-offs in stocks and government bonds for a decade or more, forcing borrowing costs up to fresh highs and the Turkish lira down to record lows against the dollar.

In late August, the lira plunged to a new low of 2.04 to the dollar and benchmark two-year government bond yields spiked above 10% – more than double the yield before the civil unrest kicked off in Istanbul’s Taksim Square.

The prospect of western military action against the Syrian government has intensified investors’ skittishness.

Similarly, Turkey’s main stock market – the Borsa Istanbul National Index – has plunged by more than 20% in...