The currency crisis in Turkey will have limited impact on German banks, given improvements in the overall resilience of financial systems, the head of Germany’s Bundesbank said on Sunday, Reuters reported.
The German central banker, also a candidate to succeed current European Central Bank (ECB) President Mario Draghi, noted that Turkey was number 16 on the list of German trading partners and accounted for just 1 percent of global economic output.
“It is much more difficult to calculate the indirect impact, for example a general loss of trust that also affects other emerging economies,” Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung newspaper.
Two major ratings agencies downgraded Turkey closer to junk status on Friday after the lira lost some 40 percent of its value against the dollar this year.
Heavy selling in recent weeks has spread to other emerging market currencies and global stocks and deepened concerns about the economy, particularly Turkey’s dependence on energy imports and whether foreign-currency debt poses a risk to banks.
According to Reuters, Turkey’s economic crisis poses a threat to European banks with business in the country.
Spain’s BBVA, Italy’s UniCredit, France’s BNP Paribas, Dutch bank ING and Britain’s HSBC are the most exposed to Turkey and vulnerable to its free-falling currency.
Analysts see as manageable even a worst case scenario — which they deem unlikely at present — under which these banks would be forced to write off completely their local operations or exit the country.
But Turkey’s troubles are feeding risk aversion among investors, who worry about financial market turmoil spreading to other emerging countries or even Italy, which faces key decisions over its budget and credit ratings after the summer.