* $ 80 billion of short-term FX debt maturing – Hermes analyst

* Loan renewal largely successful so far

* Analysts see a risk of state intervention

* Banks have yet to tap the post-COVID bond market

LONDON, June 11 (Reuters) – Turkish banks’ reliance on short-term foreign currency debt worries investors as it risks increasing pressure within the banking system and on the country’s declining reserves to the aftermath of the COVID-19 pandemic.

The banking sector, which contributes the most to Turkey’s external financing needs, relies heavily on short-term foreign currency financing which is renewed almost every year.

The ability of banks to finance this debt became more focused as Turkey’s external finances weakened after the pandemic. Its foreign debt obligations stand at $ 168 billion and its current account is expected to post a deficit of $ 4.5 billion in April due to weak exports and tourism receipts.

“The problem around Turkey is not really the sovereign itself, but it is the impact of any short-term loans in the banking sector (which) would potentially have on the sovereign. This is something that concerns us, ”said Uday Patnaik, head of emerging market debt, Legal & General Investment Management, which is underweight Turkey.

“In the unlikely event that Turkish banks are not able to renew their loans, this could put pressure on the banking system and on the central bank’s foreign exchange reserves, if there is a need to provide foreign exchange. “, did he declare.

Turkey’s central bank’s net foreign exchange reserves fell to $ 31.55 billion as of June 5, from $ 41 billion at the start of this year, according to the latest official data.

OBSTACLES

Although many lenders have refinanced large portions of foreign debt, including syndicated loans, so far this year, even at the height of the market dislocation in March, they face another pile of debt. maturing in the coming months.

About $ 80 billion in short-term foreign exchange debt matures by the first quarter of 2021, said Filippo Alloatti, senior analyst at Hermes Investment Management, noting that the rollover process would not be easy but could eventually be completed. .

Yet Fitch Ratings last month signaled the growing risk of government intervention in the banking system as it seeks to consolidate its external finances. Such a measure could hamper the ability of banks to meet their foreign currency obligations.

Moody’s said foreign currency deposits, which represented 52% of total deposits at the end of March, were vulnerable in a stressed scenario, such as capital controls or restricted access to foreign currency for depositors.

Fitch also pointed out that Turkish domestic private sector banks Isbank and Yapi Kredi were at risk, with up to 27% of their funding coming from wholesale foreign currency funding at the end of 2019.

Turkish banks’ access to the bond market can still be tricky in the aftermath of the pandemic.

Although the lira has partially recovered, investors are still nervous after plunging in May to an all-time high against the dollar, below a previous level reached during a 2018 currency crisis, when banks pulled back. found to hold large amounts of bad loans.

“We need some stabilization of the exchange rate between the Turkish lira and the dollar or some stabilization from an economic point of view,” Alloatti said. “There must also be a more orthodox economic policy in Turkey before we can issue. “

In the meantime, some will opt for cheaper shorter-term syndicated loans or for intra-group financing to catch up with them. But this option might not be available to everyone.

“We believe it will be difficult for some smaller or weaker players to access wholesale funds,” Moody’s said in an emailed response to Reuters. (Additional reporting by Karin Strohecker; editing by Emelia Sithole-Matarise)