Factbox: Fallout for Turkey's consumers, companies, banks as lira crashes

A money changer holds Turkish lira banknotes at a currency exchange office in Ankara, Turkey October 12, 2021. REUTERS/Cagla Gurdogan/File Photo

ISTANBUL, Nov 24 (Reuters) - A historic plunge in Turkey's lira leaves consumers with higher prices, a rising cost of living and even product shortages, while foreign debt is spiking for companies, and protective buffers are strained at banks.

The lira has clawed back some losses after Tuesday's 15% crash to record lows, driven by President Tayyip Erdogan's defence of rate cuts, but volatility and steep price rises still worried consumers and investors. read more

The lira woes are seen having an impact in the following ways:

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CONSUMERS

The lira weakness and price hikes will hit low-income Turks hardest as the value of their earnings is sharply eroded. More affluent Turks with foreign currency holdings will be partially shielded from the currency slump.

Basic goods will be affected. Turkey's milk producers called on Wednesday for the government to raise the price of wholesale milk by up to 55% as depreciation pushes up feed and other input costs. Similar pressures are likely in other sectors.

The cost of imported goods is likely to rise particularly sharply, and retailers are already struggling to keep up with price moves. Turks attempting to buy iPhones and other electronics received online error messages on Wednesday, including from Apple Inc's (AAPL.O) local website. read more

COMPANIES

Many Turkish manufacturers are highly dependent on imports of raw material and intermediate goods for production. Amid surging commodity prices globally, the lira's weakness adds a considerable cost burden on Turkish companies.

The unpredictability of forex rates has led suppliers to stop credit sales, with many preferring to wait before making further sales. Some suppliers do not even want to make cash sales because they do not know if they will be able to replace their product at that forex rate. According to Turkish manufacturers, this could lead to product shortages soon.

Companies selling to the domestic market with costs in dollars and revenues in lira are suffering most. Export companies, with hard currency revenues, are in a better position but may face a fresh challenge to profitability with customers asking for discounts because of the lira's competitiveness.

The lira weakness will be an additional burden for indebted companies. Central bank data shows private sector loan debt from abroad stood at $171.6 billion at the end of September, with some 60% of the debt owed by non-financial companies.

According to data compiled by economist Haluk Burumcekci, those non-financial companies have as of September around $52.8 billion in debt that has to be paid back or refinanced within 12 months.

BANKS

The surging value of the dollar is pushing up the lira value of foreign currency loans, potentially affecting the banking sector's capital adequacy ratios (CAR).

Some banks may face difficulties keeping above the 12% ratio sought by Turkey's regulator, which is considerably higher than the 8% level regarded as acceptable internationally.

Banking sources say that to hedge the impact on rising loans value, banks would need forex-denominated capital and that banks which did not have sufficient foreign-currency subordinated loans may face difficulties meeting the lower CAR limit.

Turkey's banking watchdog BDDK says banks have $160 billion worth of foreign currency loans as of Nov. 18. Since the central bank's interest rate cuts began at the end of September, triggering the currency slide, the lira equivalent of foreign currency loans in the banking sector has risen by nearly 40%.

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Reporting by Ebru Tuncay, Ceyda Caglayan and Can Sezer in Istanbul; Writing by Daren Butler; Editing by Jonathan Spicer and Dominic Evans

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