Moody’s sees ‘very high’ foreign exchange risk for banks in Ukraine, Turkey – Reuters

Moody’s sees ‘very high’ foreign exchange risk for banks in Ukraine, Turkey – Reuters

LONDON, Dec 5 (Reuters) - Banks in countries such as Ukraine and Turkey face a "very high" risk from restrictions on capital flows, weak international reserves and a high level of foreign currency debt, Moody's Investors Service said in a report on Monday.

Belarus, El Salvador, Nigeria, Kyrgyzstan and Tajikistan complete the list of countries also exposed to high levels of dollar deposits, according to the report that covers 39 banking systems in emerging market economies where foreign exchange deposits are 10% or more of total deposits.

"High dollarization causes multiple problems when the local currency drops sharply in value," according to the report headed by Moody's vice-president and senior credit officer Eugene Tarzimanov. "The banks become vulnerable to an increase in defaults on foreign currency loans granted to unhedged borrowers which hurts the banks' profitability, while their liquidity and capital can also come under pressure."