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16 Aug 2018

International Economy

Turkish Currency Crisis…Limited Impacts on Thai Financial Sector (Current Issue No. 2924)

            Financial markets worldwide are keeping close watch on possible risks and impacts that may be caused by the Turkish Lira crisis. Although the Lira has picked up somewhat (after hitting a historical low at 7.2362/USD on August 13), it will likely face many sell-offs ahead amid limited tools/resources to deal with such volatilities. Meanwhile, the fragility of Turkey's economic fundamentals is not something that can be fixed in the foreseeable future.

           ​ The pressure on the Lira is seen as mainly caused by domestic factors in Turkey (in particular weak economic fundamentals and the political situation). This may be proven by the overall picture of Asian currencies that have moved in a narrower band than the Lira, which has already fallen 36.8 percent since early 2018. As for the Thai Baht, it has dropped only 2.0 percent from the beginning of the year.

            With respect to possible impacts on Thailand via mutual funds, information of Thailand's Office of the Securities and Exchange Commission (SEC) points out that Thai mutual funds' investments in Turkey are worth around THB7 billion, or merely 0.15 percent of the net asset value of the Thai mutual funds. Therefore, an adverse effect should not be incurred. However, given that Turkey's crisis may escalate, the second wave of repercussions may hurt the banking sectors of many countries in Europe, and the size of linkage with Thailand will grow accordingly. Thai mutual funds' outstanding investments in Europe (including Turkey) account for approximately 1.4 percent of the total outstanding foreign investments of those funds.

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            Concerning the Thai commercial banking sector, KResearch views that possible impacts will not likely be very serious due to insignificant relations with Turkey's banking sector. In addition, the prevailing position of Thai commercial banks is much stronger than what they were during previous global crises.

International Economy