Treasury & FX in Turkey

Chairman’s commentary

The current situation in Turkey has all the hallmarks of the situations treasurers typically face in complex countries: political uncertainty, fast changing regulations, difficulty repatriating cash, FX volatility, high interest rates, liquidity issues, unexpected tax increases, etc, etc. In addition, the country has borders with one of the world’s most volatile regions, and it relies heavily on tourism, with the associated impact from COVID 19.

We had a lively discussion about the challenges everyone is facing. The full technical details are in the conversation below. But the main conclusion several participants have drawn is that it is important to have a good local team to manage the situation and be able to respond quickly.

Details:

• Trapped cash: customers are generally still paying, but it is becoming increasingly difficult and expensive to get cash out:
  • Dividend remittances were restricted in 2020 to 25% (restriction lifted in 2021)
  • There is talk of introducing withholding tax on dividends
  • Local teams are reluctant to release cash to HQ, given the economic uncertainty
• All importers are struggling with the FX volatility
• The current situation is leading one participant’s company to re-visit a past decision to close a manufacturing facility in Turkey and supply the country from elsewhere
• Banks’ ability and willingness to lend is getting squeezed, increasing the concerns on cash 
• This is leading to a review of equity levels: one participant recently did a capital reduction, and is now looking at reversing that.
• A recent requirement for all leasing contracts to be in TYR and high interest rates have caused one participant to reverse a lease-vs-buy decision, further increasing the pressure on cash
• Several participants struggle with an excessive number of bank accounts, as different accounts are often required for different payments
• Hedging: some participants have moved hedging onshore, but have found liquidity an issue
• One participant remarked that China sees an opportunity – there is a lot of inbound M&A

Bottom line: Turkey always has been, and remains, a challenging environment, even if it goes through spells of relative stability and prosperity. All participants found that it is an important country, and are fully committed to maintaining operations, so they will do what it takes to help their local operations get through this difficult period. It is essential to have a good local team to get through the upheavals and the complexity.

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