Turkey interest rate cut to dampen foreign investor appeal

Low interest rates are expected to undermine Turkey’s ability to appeal to domestic and foreign investors. (AFP)
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Updated 19 January 2020

Turkey interest rate cut to dampen foreign investor appeal

  • The latest 75 basis point cut on Jan. 16 follows four consecutive cuts during the last four monetary policy meetings that were held last yea

LONDON: Turkey’s move to cut interest rates highlights the country’s economic fragility and its exposure to geopolitical risk, say analysts.

The latest 75 basis point cut on Jan. 16 follows four consecutive cuts during the last four monetary policy meetings that were held last year. In a bid to stimulate growth, President Recep Tayyip Erdogan also hinted recently about the forthcoming interest rate cuts. 

However, low interest rates are expected to undermine Turkey’s ability to appeal to domestic and foreign investors.

Foreign direct investment remains muted, totaling about $5.9 billion in 2019, and mostly concentrated on the real estate sector. Iraqi citizens were the main buyers of Turkish properties last year, followed by Iranians, Russians, Saudi Arabians and Afghans.

The current account deficit is also alarming for many economists and investors. 

Struggling to recover from an economic recession since the summer of 2018, the Turkish lira lost more than a third of its value against the dollar over the last two years.

The aggressive foreign policy moves of Turkey’s government, first in Syria and now in Libya and the eastern Mediterranean, may also increase the country’s economic fragility especially considering impending sanctions from the US over its purchase of a Russian missile defense system. The deployment of Turkish forces and their ongoing training process, along with the drones and armaments that are being sent to support them, are also a burden to the economy. 

Wolfango Piccoli, co-president of Teneo Intelligence in London, said the rate cut had shown once more that the government’s priority remains growth and not regaining credibility. 

“The positive external backdrop means that Turkey is likely to get away with limited costs. However, this won’t last forever. There is still no indication that the government is serious in tackling the long term challenges the economy faces,” he told Arab News.

The Turkish Central Bank’s next Monetary Policy Committee is set for Feb. 19.

The dismissal of the former governor of the Central Bank, Murat Centinkaya, by President Erdogan in July sparked criticism about the independence of the bank and was considered a sign of Erdogan’s determination to keep lower interest rates by appointing a new figure closer to him. 


HSBC Hong Kong shareholders mull legal action over dividend suspension

Updated 52 min 47 sec ago

HSBC Hong Kong shareholders mull legal action over dividend suspension

  • Europe’s biggest bank by assets has a large number of small shareholders in the city
  • Hong Kong is HSBC’s single most important market, and it is one of three note issuing banks there

HONG KONG/LONDON: HSBC shareholders in Hong Kong are calling for an extraordinary meeting with the bank’s management and considering legal action against its decision to scrap dividend payments.
HSBC and other top British banks on Wednesday announced the suspension of dividend payouts after pressure from the regulator to conserve capital as a buffer against expected losses from the coronavirus crisis.
Founded in Hong Kong about 150 years ago as Hongkong and Shanghai Banking Corp, Europe’s biggest bank by assets has a large number of small shareholders in the city who have long benefited from the bank’s stable dividend payments.
Some of the Hong Kong shareholders have created a Facebook page, which had more than 3,000 members as of Sunday, to discuss possible action against the London-headquartered bank’s dividend halt.
“At this stage, we must call an EGM (extraordinary general meeting) to let the management explain to us,” H.T. Chan, a 46-year-old retired driver who is part of the Facebook group, told Reuters. “For legal action, it depends on what they respond in the EGM. Hopefully, we can call this meeting.”
Shareholders of a company with at least 5 percent of the total voting rights may require it to convene an EGM, according to Hong Kong laws.
As of Sunday, the newly formed HSBC Shareholders Alliance in Hong Kong had registered members with combined ownership of about 2 percent of the bank’s stock, Ken Lui, the convenor of the alliance, told reporters on Monday.
“Our goal is to gather 5 percent of shareholding to call for an EGM ... we are very optimistic as we have only set up this alliance four, five days ago.”
In a letter to Hong Kong shareholders after the dividend halt, HSBC Chief Executive Noel Quinn said the bank’s board would review the position once the economic impact of the pandemic was better understood.
“We profoundly regret the impact this will have on you, your families and your businesses. We are acutely aware of how important the dividend is to our shareholders in Hong Kong,” he wrote.
Analysts and investors saw little chance of the shareholder group reversing the dividend decision.
“I see the debate about the banks’ dividends as a very short one: regulator tells them what to do and they comply – end of story,” said one London-based institutional investor.
The bank’s retail investors have a good chance of forcing the EGM to happen, said Ed Firth, analyst at KBW in London.
“Whether HSBC holders getting an EGM will result in any change is far less likely,” he said.
“On the margins they may be able to establish that the Bank of England was responsible for the cut which might be relevant for future legal actions, but it looks reasonably marginal,” he said.
Hong Kong is HSBC’s single most important market, and it is one of three note issuing banks there.
A spokeswoman for HSBC said on Sunday the bank was not able to comment on any legal proceedings not yet started.
“I am following the majority action. This is a significantly essential issue as you have promised substantial and persistent dividend-paying, but you fail to do that,” said Kingsley Chow, a 39-year-old unemployed man relying on dividend income.
“Our first demand, at least, you have to open (an) EGM to explain to us face-to-face, not just an apology letter!,” he wrote on the Facebook page, referring to Quinn’s letter.