Turkish equities suffered a late slump to close at a six-week low on Friday, on fears that the country's banks will be hit with another increase to required reserve ratios, squeezing profits further. The Istanbul share index underperformed a flat emerging market index and closed down 2.93 percent to 64,585 points, after rising 1.4 percent on Thursday. The banking index fell 2.82 percent.
The lira eased on the interbank market to 1.5840 to the dollar, from a previous close of 1.5835, extending its weakest level in two months. The yield on the benchmark February 20, 2013 bond rose to 8.65 percent from a previous 8.62 percent. Earlier this week, healthy demand in auctions by the Treasury had pushed bond yields as low as 8.32 percent, but March current account data showing the deficit soared to a record monthly high of $9.766 billion, far in excess of a consensus forecast, pushed yields as high as 8.75 percent.
The current account data sparked selling of assets and overheating fears, and Friday's losses came despite comments by Finance Minister Mehmet Simsek that Turkey can finance the gap and that it will narrow. Although the government has reduced its debt-to-GDP ratio this year as well as the budget deficit, the current account gap - which makes Turkey highly vulnerable to any external shocks - has sparked huge concern.
On Friday that fuelled talk that the central bank would hike banks required reserve ratios for a sixth time since November to slow down rampant loan growth, hitting banking shares which dominate the index. Shares in Turkish Airlines fell 3.62 percent after the flag carrier posted a first-quarter net loss of 332.3 million lira ($209 million), steeper than forecast, after it was stung by higher oil prices despite a large rise in sales.
"Rapid fleet expansion and low demand caused relatively weaker topline growth ... Although higher jet fuel prices remain an issue, we think growing demand in upcoming months will support operational recovery in the second quarter," Is Invest said in a note. Turkey's stock market is flat compared with the start of the year, trading in line with the MSCI emerging benchmark index, but lagging Eastern European emerging peers such as Poland, Hungary, Russia and the Czech Republic.