Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Moody's sees 'very high' foreign exchange risk for banks in Ukraine, Turkey

Published 12/05/2022, 09:02 AM
Updated 12/05/2022, 09:05 AM
© Reuters. FILE PHOTO: Booklets are seen during a conference of Midroog, the Israeli affiliate of Moody's Investors Service, in Tel Aviv, Israel February 6, 2017. REUTERS/Amir Cohen
MCO
-

LONDON (Reuters) - Banks in countries such as Ukraine and Turkey face a "very high" risk from restrictions on capital flows, weak international reserves and a high level of foreign currency debt, Moody's (NYSE:MCO) Investors Service said in a report on Monday.

Belarus, El Salvador, Nigeria, Kyrgyzstan and Tajikistan complete the list of countries also exposed to high levels of dollar deposits, according to the report that covers 39 banking systems in emerging market economies where foreign exchange deposits are 10% or more of total deposits.

"High dollarization causes multiple problems when the local currency drops sharply in value," according to the report headed by Moody's vice-president and senior credit officer Eugene Tarzimanov. "The banks become vulnerable to an increase in defaults on foreign currency loans granted to unhedged borrowers which hurts the banks' profitability, while their liquidity and capital can also come under pressure."

Local currencies across emerging markets have weakened against the U.S. dollar this year as the U.S. Federal Reserve lifted rates amid rising inflation. MSCI's index of emerging market currencies is on course for its sharpest drop since 2015.

Currencies in Ghana, Argentina and Egypt have fallen the most this year, the credit agency said. El Salvador uses the U.S. dollar as legal tender.

Macroeconomic vulnerabilities in Armenia, Georgia, Kenya and Uganda could also affect banks. "Altogether 20 banking systems face high or very high foreign-currency risk," the report added.

© Reuters. FILE PHOTO: Booklets are seen during a conference of Midroog, the Israeli affiliate of Moody's Investors Service, in Tel Aviv, Israel February 6, 2017. REUTERS/Amir Cohen

Moody's sees that international reserves in most emerging market economies have fallen since Russia's invasion of Ukraine, as governments fund current account deficits and defend their currencies against the U.S. dollar.

Foreign exchange risk is at the lowest in emerging markets such as Chile, Ivory Coast and Indonesia.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.