This chart shows how Turkey's debt problem has exploded since the collapse of its currency

(Elizabeth Morris / Photo Bank via Getty Images)
  • Research from ANZ shows Turkey’s debt pile denominated in foreign currencies has rocketed higher since the lira’s collapse.
  • A conservative estimate puts Turkey’s foreign debt at around 88% of GDP, more than double that of large Asian economies.
  • The Turkish lira steadied overnight but markets remains on edge as relations between Turkey and the US show no signs of improving.

The amount of debt Turkey owes in foreign currencies is now equivalent to almost the entire size of the Turkish economy, data from ANZ shows.

The observation was made by analyst Khoon Goh in a research note on Asia’s exposure to Turkey, following the recent plunge in the lira (TRY).

Based on the most recent available data to the end of March, Goh said Turkey’s foreign currency-denominated debt pile amounted to $US437.7 billion — equal to around 50% of nominal GDP.

But that was when Turkey’s exchange rate with the US was around 3.96 lira per US dollar.

A short time ago the USD/TRY was trading at around 6.4, after briefly spiking above 7 earlier this week.

“Based on the current exchange rate, the ratio has likely risen closer to 88% of GDP,” Goh said.

And that may be a conservative estimate, because it assumes Turkey’s foreign currency debt levels have remained constant in that time.

The lira has stabilised over the past 24 hours, which helped provide support for risk assets as US stocks posted their first gains in five sessions.

But markets remain tense as relations between Washington and Ankara show no signs of improving. Overnight, Turkish President Tayyip Erdogan said the country would boycott all US electronic goods in response to US sanctions.

Goh’s interesting note also included this chart which summarises the direct exposure of foreign banks to Turkish assets:

Following the lira’s initial collapse last Friday, global markets assessed the prospect of contagion fears from foreign exposures, particularly European banks.

“As at Q1 2018, foreign banks had USD265bn of claims on Turkey. Spanish banks had the largest exposure at USD82.3bn, or 31% of the total, followed by French banks at USD38.4bn (14.5% of the total),” Goh said.

Ultimately, Goh concluded that Turkey’s currency problems are unlikely to pose a contagion risk for Asian economies.

Goh said the moves in Asian currencies so far have been relatively modest, and Asia’s exposure to Turkey in terms of both trade and debt holdings is low.

But although Asia’s economic fundamentals are stronger than Turkey, Goh said the lira’s plunge has kept markets on edge when combined with other recent developments.

“The fact that it is happening under the backdrop of ongoing US-China trade tensions, and with the US Federal Reserve set to tighten monetary policy further, means that the market will be on the lookout for the next potential pocket of stress,” Goh said.

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