Fed minutes, EU-Turkey and objections against S&P rating

Today’s report will cover three recent and important events. First, I will talk about Fed minutes, then notes from EU-Turkey panel at Altınbaş University, and finally the Banks’ Association of Turkey’s objections against S&P’s Turkey credit rating.

The minutes of Fed FOMC meeting tell us that there are ongoing global concerns on how growth can be attained in 2019. It appears like most of the Fed members at the meeting have serious hesitations about rate hikes and their frequency. Even some of the Fed members have also voiced their concerns about World Economy, Brexit and Chinese economic slowdown. That’s what the minutes show us anyway.

Speaking of Brexit, we welcomed Bertrand Buchwalter, the Consul General of France to Istanbul, on Wednesday night at Altınbaş University. When we asked him about the Brexit, he said that France respects the British’s decision to leave the EU; however, it has big concerns as well, while underlining that UK citizens have the right to shape their own future but this Brexit decision will bring no good neither to France nor EU or the World.

Well, I happen to agree with him completely: London feels the impact of the recession on retail sales volumes, Honda shuts down its UK-based factory, and many multinational corporations are ready to leave UK market. Professor Ahmet Kasım Han, who was also present at the conference, pointed out something even worse: As you may know, Royal Navy had decided to let go of some of its expensive toys such as “aircraft carrier”. But now it is looking to keep hold of it, even acquire more of these warships. It is reported that they may even patrol in coordination with the U.S. Army. According to Professor Kasım Han, having lost their soft power after the Brexit vote, the British are trying to reclaim their position as ‘dissuasive force’. Not very cheering, don’t you think?

“Is S&P entirely wrong?”

Sudden rise in USD/TRY and EUR/TRY doesn’t go unnoticed either. There’s USD 22 billion money inflow of unknown origin into Turkey. It’s not easy to monitor the way this huge amount leaves the country. Experts did their best to come up with a reason for this snap ascent however we can only guess at the reasons of such sharp fluctuations unless we take the necessary measures to properly monitor this money traffic.

I’d like to make a brief analysis of Banks’ Association’s revolt against S&P Turkey rating: It’s no secret that Credit Rating Agencies make their decisions based on political grounds. I can foresee that these agencies may take part in some project designed to weaken Turkish economy in the process.

Banking industry has become a huge source of pride for Turkey after we learned our lesson in 2001 financial crisis. So, we can take either technical or an emotional approach to evaluate the statements made by the Banks’ Association of Turkey yesterday. Banking industry must admit that it provides more than enough loans are provided to some of the borrowing groups. It should also accept the fact that while it is trying to reduce risk by providing foreign currency indexed loans; it causes companies that don’t earn foreign-currency revenue to become indebted by the exchange rate.

Obviously, banks cannot reduce their balance sheets like other institutions do. They must keep growing and growing. I just want them to realize that huge mistakes can be made in times of high growth when trying to get just half step ahead competitors.

In short, Banks’ Association’s reaction is only natural. However, we should avoid emotional sensitivity, become aware of certain facts and take measures accordingly.