Garanti Bank headquarters is pictured in Istanbul, Turkey. Photo: Reuters

The Turkish lira is headed for another record low versus the dollar. Most ominously, the shares of Turkish banks are crashing, with the country’s flagship bank, Garanti, down 13% in the past week. Garanti is now trading at about 70% of book (that’s where Alpha Bank of Greece was trading in December 2014).

Garanti Bank Share Price in TRY

There is little news at the company level. Garanti is 49.9% owned by Spain’s BBVA. The issue seems to be “the risk of growing state intervention in defining monetary policy,” as Bloomberg comments. There is also concern that Turkish banks will suffer under the Bank of International Settlement’s IFRS 9 risk metric. Turkish banks have capitalized a lot of interest in the past several years and IFRS 9 is intended to detect and require higher provisioning for such loans.

The risk is that Turkish banks, who have funded a great deal of the country’s current account deficit through the interbank market, will face counterparty resistance and have to reduce foreign-currency exposure. That could create a shortage of foreign exchange and send the Turkish lira into a downward spiral.