Turkey's skyrocketing inflation is flashing warning signals for Gulf banks
DUBAI, United Arab Emirates — Banks with exposure to Turkey have faced losses ever since the country's currency began steeply depreciating in 2018; now, lenders in several oil-rich Gulf states in particular are set to take a hit in the next year because of their links to the country, according to a recent report by ratings agency Fitch.
Banks in the Gulf Cooperation Council — that's Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — with Turkish subsidiaries had to adopt «hyperinflation reporting» in the first half of 2022, Fitch wrote this week, as cumulative inflation in Turkey over the last three years surpassed a whopping 100%.
Fitch calculates that GCC banks with Turkish subsidiaries posted net losses of roughly $950 million in this year's first half. Among the hardest hit were Emirates NBD — Dubai's flagship bank — and Kuwait Finance House, the second-largest bank in Kuwait. Turkish exposure for Kuwait Finance House and Emirates NBD is 28% and 16% of their assets, respectively. Qatar National Bank was also among those affected.
«Fitch has always viewed GCC banks' Turkish exposures as credit-negative,» the ratings firm wrote. «Turkish exposures are a risk for GCC banks' capital positions due to currency translation losses from the lira depreciation.»
The lira has lost 26% of its value against the dollar year-to-date, making imports and the purchase of basic goods much more challenging for Turkey's 84 million residents.
This time five years ago, one dollar bought roughly 3.5 Turkish lira. Now, a dollar buys about 18 lira. The slide began as Turkey's economy grew rapidly but its central bank declined to raise interest rates to cool rising inflation. That and things like a worsening current
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