Goldman warns fresh lira drop could wipe out Turkish banks' capital buffers

FILE PHOTO: A view of the Goldman Sachs stall on the floor of the New York Stock Exchange in New York, U.S. on July 16, 2013. REUTERS/Brendan McDermid

LONDON (Reuters) - A further drop in the Turkish lira to 7.1 versus the dollar could largely erode the country’s banks’ excess capital, investment bank Goldman Sachs has warned.

A note from the bank’s analysts estimated that every 10 percent drop in lira impacts banks’ capital levels by 50 basis points on average.

They calculated that the 12 percent slump in the currency since the end of June had left Yapi Kredi with the weakest capital levels of all the main Turkish banks, having also wiped out the remaining benefit of a recent rights issue.

Garanti and Akbank meanwhile looked better placed relative to peers they added.

“Incremental lira depreciation could increase capital concerns for banks, especially for ones with lower capital levels,” Goldman’s analysts said.

Reporting by Marc Jones; editing by Karin Strohecker