International ratings company Standard & Poor’s urged that political uncertainity in Turkey raised the country’s vulnerability against currency-linked risks, within its recent report investigating how currency depreciation is hurting banking systems in Europe, the Middle East, and Africa (EMEA)
The company underlined the depreciation could affect countries such as Russia, Nigeria and Azerbaijan.
“Currencies have been depreciating against dollar”
According to the report entitled “How Currency Depreciation in the EMEA Region is Raising Risks for Banks”, currencies in many emerging markets in EMEA have depreciated sharply in the past 12 months against the dollar, raising risks for banks in those countries.
“Political uncertainty” in Turkey
“Key triggers for the sell-off have been expectations for a potential increase in U.S. interest rates, and more recently, concerns over the economic outlook for emerging markets in light of China's slowdown. Also playing into currency weakness are country-specific factors, such as political uncertainty in Turkey and declining commodity prices in Russia, Nigeria, Kazakhstan, and Azerbaijan” urged the report.
Three key risks
The rating company also identified three key risks that vary from country to country: Increased loan losses from foreign currency lending, excessive dependence on foreign borrowing, and potential currency losses from asset-liability mismatches.