By Marc Jones
LONDON (Reuters) - One of Turkey's biggest multilateral investors, the European Bank for Reconstruction and Development, has passed internal stress tests for a 40 percent drop by the lira, sources told Reuters, but the currency has weakened more than that this year.
The exercise, which was done in response to the lira's accelerating decline and relayed privately to the development bank's 67 government shareholders at a board meeting last month, concluded it could withstand such a slump, although it would suffer losses.
"It is rather serious, but it would not threaten the bank's financial position," the source said, referring to impact of the lira's crash. "We had some resilience built in."
Turkey has become the EBRD's largest country of operation since it stopped lending in Russia 2014. It has a combined 7.3 billion euros ($8.31 billion) of projects, loans and equity stakes there, and has pumped in 3.5 billion euros over the past two years.
The 40 percent drop in the Turkish currency was the most extreme of at least three scenarios modeled by the EBRD's economists and risk management department, which is overseen by one of its vice presidents, Betsy Nelson.
The view was that such a huge fall would be a once-in-a-century event. However, the currency is now down 45 percent this year (TRYUSD=R) and it has shed around 35 percent from the time the stress test was conducted.
An EBRD spokesman would not comment on the test's findings. He reiterated the bank's recent statement that it remained committed to investing in the Turkish economy.
The issue is crucial because the EBRD has a prized triple-A rating and will not want to use up too much valuable capital or have to tap shareholder governments for additional cash.
One of the sources said the situation was almost certain to be scrutinized again when the bank's directors reconvene in early September.
It often works alongside Turkish banks, all of which have seen their share prices and bonds hammered by the collapse of the lira in recent weeks.
"I think if it (lira) goes into a freefall, we might have an emergency message," the source said, speaking on condition of anonymity because of the confidentiality of the stress-test.
The picture for the EBRD in Turkey is also being complicated by troubled relations between the United States, the bank's biggest shareholder, and Ankara.
Late last month, a group of U.S. lawmakers introduced legislation that would curb lending in Turkey by the EBRD and other international finance institutions in Turkey
It is part of a bid to ramp up pressure on Ankara over the case of an American pastor jailed in Turkey.
"September will be very busy," the source said. "Turkey will be on everyone's radar."