Turkey’s credit rating was cut further into junk by Moody’s Investors Service on an erosion of institutional strength as well as more risk of external shocks and geopolitical risks. The lira weakened.
Moody’s lowered the rating one notch to Ba2, two levels below investment grade, with a stable outlook, Moody’s analyst Kristin Lindow said in a statement Wednesday. That leaves the nation on par with Brazil, Croatia and Costa Rica.
The government of President Recep Tayyip Erdogan appears focused on short-term measures, undermining effective monetary policy and economic reform, Ms Lindow wrote. Persistent inflation and political drivers, such as the ongoing state of emergency following an attempted coup in 2016, have weighed on the country. Debt and rollover needs have worsened, she wrote.
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“The potential triggers of a re-evaluation of Turkish country risk by foreign investors continue to multiply with the continuing deterioration of Turkey’s geopolitical situation,” Ms Lindow wrote. “Turkey’s sovereign rating would likely be downgraded if there is a material increase in the probability and proximity of a balance of payments crisis.”
Moody’s cited the refusal to implement a decision in January by the Constitutional Court to release journalists Mehmet Altan and Sahin Alpay, who were charged with attempting to destroy the constitutional order. Mr Altan was later sentenced to life, while Mr Alpay awaits his verdict.
“The geopolitical risk arising from Turkey’s recent engagement in Syria becomes more marked the longer and deeper the engagement goes on,” Moody’s said, regarding the “Olive Branch” offensive against Syrian Kurdish militants that started Jan. 20.
The lira fell as much as 0.4 per cent to 3.8093 per US dollar after the downgrade, and was trading 0.2 per cent lower at 3.8072 at 10:25 a.m. local time. The currency is little changed so far this year, compared with a 2.5 per cent gain in the MSCI index of emerging-market currencies. Ten-year government bond yields rose as much as 10 basis points to 12.3 percent.
Moody’s also downgraded the long-term senior unsecured debt of state-run Hazine Mustesarligi Varlik Kiralama, a Turkish special purpose vehicle used to issue sukuk lease certificates.
MATCH INFO
Uefa Champions League last-16, second leg:
Real Madrid 1 (Asensio 70'), Ajax 4 (Ziyech 7', Neres 18', Tadic 62', Schone 72')
Ajax win 5-3 on aggregate
How to register as a donor
1) Organ donors can register on the Hayat app, run by the Ministry of Health and Prevention
2) There are about 11,000 patients in the country in need of organ transplants
3) People must be over 21. Emiratis and residents can register.
4) The campaign uses the hashtag #donate_hope
The BaaS ecosystem
The BaaS value chain consists of four key players:
Consumers: End-users of the financial product delivered
Distributors: Also known as embedders, these are the firms that embed baking services directly into their existing customer journeys
Enablers: Usually Big Tech or FinTech companies that help embed financial services into third-party platforms
Providers: Financial institutions holding a banking licence and offering regulated products
Key changes
Commission caps
For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:
• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term).
• On the protection component, there is a cap of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).
• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated.
• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.
• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.
Disclosure
Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.
“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”
Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.
Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.
“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.
Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.
