The Turkish Lira crisis is fundamentally different than the Russian Ruble crisis of 2014/15. This one has contagion risk.
Back then no one was worried about the fall of the ruble having spillover effect. If Sberbank failed, it wouldn’t jump to Europe. Then again, there was little worry about that since the Russians had more than enough in reserves to cover the debts.
With Turkey, however, there is a real worry about this jumping into Europe. From Zerohedge:
Friday’s fall came after the Financial Times reported that supervisors at the European Central Bank are concerned about exposure of some of Europe’s biggest lenders to Turkey, including chiefly BBVA, UniCredit and BNP Paribas. The FT reported that along with the currency’s decline, the ECB’s Single Supervisory Mechanism has begun to look more closely at European lenders’ links with Turkey. The moves also came after the US showed no signs of lifting crippling sanctions despite the visit of a Turkish delegation to the US capital.
According to the FT, the ECB is concerned about the risk that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans, which make up about 40% of the Turkish banking sector’s assets.
And while it does not yet view the situation as critical, it sees Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas, which all have significant operations in Turkey, as particularly exposed, according to two people familiar with the matter.
Note the banks here. Italian zombie-bank UniCredit. Spain’s BBVa and France’s major zombie-bank BNP Paribas. You can almost smell the desperation in the Financial Times’ reporting on this.
Everyone thought Turkey would not take…