Banks from the Gulf principalities that worked with Turkey suffered severe financial losses since the Turkish currency plummeted in 2018 and created severe inflation. Now, leaders in several wealthy Gulf principalities are bracing for another blow next year over their ties to Turkey, according to a recent report from ratings firm Fitch.
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Banks in countries such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the Emirates with branches in Turkey had to adjust to reports of hyperinflation in the first half of 2022. Cumulative inflation in Turkey over the past three years has soared above 100%. According to reports, banks with Branches in Turkey suffered losses of approximately 950 million dollars in the first half of 2022, with the biggest loser being NBD, the second largest bank in Kuwait.
The Turkish lira has lost 26% of its value against the dollar this year, which makes importing and purchasing basic goods much more challenging for Turkey’s 84 million inhabitants. Five years ago, one dollar was worth about 3.5 Turkish lira, and today one dollar is worth 18 lira.
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The slide began when the Turkish economy grew rapidly but its central bank refused to raise interest rates to stop rising inflation. Added to this were other factors such as the reduction of foreign currency surpluses and the increase in energy prices, including conflicts with the US that almost ended in sanctions on Turkey, worsened inflation.