OBESITY OF TURKEY: NEW PERSPECTIVE

Half of Turkey’s companies are constituted by weak companies in terms of debt payback capacity following the financial shock. Turkey’s strength lies upon the public balances whereas its weakness lies upon the companies’ debt as well as its fragility against the growth, exchange rates and interest rates.  If the political instability continues this way in Turkey, the shrinking external financing will see its credit note drop.

As long as the capital inflow coming to Turkey drops, the current account deficit drops too. In a conjuncture where the capital inflow has stopped, the current account deficit drops due to the less money coming in. The exit continues in the portfolio accounts as well as in the short-term capital. During the month of February, the total amount of stock, bond and deposit that have exited amounts to 2 billion USD. During the December – February period, this total was 7 billion USD. In the exit stage from the monetary expansion in the United States, it is well known that the developing countries will get into trouble for it is going to be a troublesome period for them.

During this process, the most critical area is the following: what will the debtors that have high debt load and low debt service capacity do? In a conjuncture where external funding has decreased and capital inflows have reversed, the corporate sector will become more sensitive. During such a period, debt costs rise and revenues fall. In other words, the companies of the developing countries accumulated debt very rapidly and they will face difficulties in servicing their debt.

In a sensitivity analysis in which one incorporates some small and large company samples, in case there is a rise of 25% in the costs and 25% drop in the revenues, there is a net increase in the number of weak companies and non-performing loans. If the EBIT of the companies in question is less than twice the debt service, these loans enter into the risky category. According to this analysis, half of Turkey’s companies are constituted of weak companies which carry risky loans.

In the last 5 years, Turkey has become an obese by eating everything that has been served to her. In the debt change following the 5 years after the global crisis, Turkey has reduced its public debt whereas the households, companies and banking sector have seen a credit growth which stands as the champion...