Turkey is worth billions to Swiss finance but the country's recent currency collapse doesn't bode well.
Bankers should become very wary when any currency loses 15 percent of its value to the U.S. dollar in one day, such as with the Turkish lira, which has now fallen to record lows against the dollar and the euro.
Losing Interest
The decline is apparently what Turkish President Recep Tayyip Erdogan wants. He is fighting an «economic war of independence» to bolster the economy and make exports more competitive by pressuring the country's central bank to cut rates.
That has made the Lira lose almost half its value this year, making it the worst-performing currency in the world against the dollar. Observers have heavily criticized Erdogan's plan, saying that it will trigger more inflation by making prices for imports jump.
In the meantime, the opposition is calling for elections while an apparently nonplussed central bank recently released a statement saying that the recent currency movements were detached from economic fundamentals.
Swiss Haven
It should not be of much surprise that Turkey is worth billions to Swiss finance, with banks doing business both with Turkish companies and the country's wealthy entrepreneurs. A recent UBS earnings report shows that it has about $1 billion in commercial credit outstanding on the books.
«Swiss finance generally profits when the countries of its clients become unstable», said Sacha Fedier, who heads VT Wealth, a Zurich-based independent wealth manager. The importance of Switzerland as a safe haven has increased in the last few months, he told finews.com. «The end result has been a significant volume of new money.»
Grey List
But business on the Bosporus has also become more complicated in the meantime. The Financial Action Task Force (FATF) has put Turkey on its grey list, together with Mali and Jordan. That means that it is under increased monitoring by the global money laundering and terrorist financing watchdog.
According to observers, the step may also have been linked to Erdogan's attempts to influence monetary policy. In any case, as Reuters indicates, the listing will likely prompt a further exodus of foreign investors and strain or limit relationships with banks abroad.
A study by the International Monetary Fund indicates that countries sanctioned by the FATF suffer a 7.6 drop in gross domestic product afterward.
Unicredit Pulls Out
Finma also recently reminded Swiss finance about the importance of such a move. «Finma calls on all financial intermediaries to take the FATF information into account in their risk management strategies,» it warned.
When questioned, a Finma spokesman said that client activities from countries under increased monitoring needed to be thoroughly investigated. «High-risk business relationships and transactions need to be recorded with exact justification including, for example, any business relationships with clients from high-risk countries or politically exposed persons.»
Foreign banks are already pulling out. Even though the step was announced more than two years ago, Unicredit recently completed the sale of its remaining stake in Yapi Kredi, Turkey's third-largest bank.
Safe at Home
Both major Swiss banks are keeping quiet about their exposure to Turkey. They appear to be comfortable with their compliance and know-your-client processes related to Turkey and other countries in similar situations.
Fedier is also not particularly unsettled by the whole situation. «We trust our comprehensive due diligence procedures and do not see any need to change anything because of the FATF's decision.»
«Turkish clients have been living with the situation in their country for years now», he says, adding that no one is trying to escape in a hurry. «Many Turkish entrepreneurs are close to their country and would not think of turning their bank on it.»
Additional reporting: Rico Kutscher
