An index of Turkish banking stocks fell as much as 3.5% after Finance Minister Naci Agbal announced a proposed increase in the corporate tax rate for financial institutions from 20% to 22%.
Tugce Ozsov reports at Bloomberg:
- Gauge was down 3.2% as of 3:22pm in Istanbul, the biggest decline in 6 months
- Biggest drag on the index was from Garanti (-3.6%) and Akbank (-3.1%)
- Istanbul-based brokerage Garanti Securities’ long-term sustainable return-on-equity expectation for the banking sectoris 15%, analyst Recep Demir writes in note. “Along with the new corporate tax, our sustainable ROE expectation will decline by 30-40bps, which implies a 6-7% lower valuation for our banking coverage”
- Says banks that have relatively higher sustainable ROEs, like Halkbank and TSKB, will be the hardest hit
Fed’s plans spell trouble for Turkey
Flows of hot money that have fueled Turkey’s growth may be about to slow. The AKP government weathered an economic tremor in the second half of 2016, thanks in part to the hot money, and domestic loan expansion, but has created potentially bigger problems. Increased budget deficits have added to an already huge current account deficit, as Mustafa Sonmez writes for Al-Monitor:
In sum, for the period after September, which is emerging as a new chapter after the Fed meeting last week, Turkey has $170.5 billion in external debt to roll over within 12 months, and even if the annual current account deficit does not extend beyond the estimated $35 billion, Turkey’s external financing requirement still reaches $205.5 billion. The foreign-exchange burden of the private sector, which makes it vulnerable against the prospect of a stronger dollar, and “the big picture” of the country’s net foreign-exchange deficit — close to 52% of the GDP in July — are also omens of critical times down the road.