Turkey’s Real Economy Enters 2026 Carrying Elevated FX Risk

Summary:

Turkey’s non-financial corporate sector has entered 2026 with a sharply expanded foreign-currency mismatch, leaving companies increasingly vulnerable to exchange-rate shocks. Central bank data show that FX liabilities have grown far faster than FX assets, pushing the net open FX position to levels that now pose macroeconomic risks rather than firm-specific balance-sheet concerns.

Turkey’s real sector companies began 2026 facing heightened foreign-exchange risk as global economic uncertainty, geopolitical tensions, and financial fragmentation continue to intensify. According to the Central Bank of the Republic of Türkiye’s (CBRT) latest data for October 2025, non-financial firms sharply widened their net foreign-currency open positions over the past year, largely due to aggressive FX-denominated borrowing.

CBRT figures show that in the first ten months of 2025, real sector companies increased their foreign-currency assets by 11.6% to $175.46 billion, while FX liabilities surged by 17.4% to $358.26 billion. As a result, the net FX open position expanded by $34.9 billion, or 23.6%, reaching $182.8 billion by October.

The scale and pace of this increase suggest that companies operated under the assumption of continued exchange-rate stability and did not meaningfully hedge their currency exposure. Analysts note that the FX gap has moved beyond a “lack of hedging” issue and entered the realm of systemic vulnerability, exposing firms to potentially severe balance-sheet stress in the event of currency volatility.

Asset Growth Driven by Overseas Investments

The increase in FX assets was largely driven by outward direct investment. Of the $18.2 billion rise in foreign-currency assets over the period, $7.47 billion came from direct capital investments abroad.

Additional increases were recorded in:

• FX deposits held domestically and abroad (+$5.26 billion),

• Export receivables (+$4.81 billion),

• FX-denominated securities portfolios (+$692 million),

• Derivative assets (+$13 million).

As of October 2025, real sector FX assets consisted of:

• $74.76 billion in FX deposits,

• $54.12 billion in export receivables,

• $33.33 billion in direct investments,

• $10.76 billion in derivative assets,

• $2.48 billion in FX securities holdings.

While asset growth remained diversified, it lagged far behind the expansion in liabilities, intensifying the currency mismatch.

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FX Loan Growth Dominates Liability Expansion

The sharp increase in FX liabilities was primarily driven by growth in foreign-currency cash loans. Outstanding FX-denominated cash loans rose by 18.9% in ten months, from $249.5 billion at the end of 2024 to $296.5 billion by October 2025—an increase of $47.0 billion.

Of this total:

• $177.7 billion consisted of FX loans obtained from domestic banks and non-bank financial institutions such as factoring and leasing companies,

• $118.8 billion came from foreign banks.

Net FX borrowing increased by approximately $26.5 billion from domestic sources and $20.2 billion from external lenders during the period.

In contrast, import-related FX payables declined slightly by $250.9 million to $48.0 billion, suggesting that the rise in FX exposure was not driven by trade activity but by financial borrowing. Meanwhile, derivative liabilities surged by 87.4%, rising by $6.38 billion to $13.68 billion, reflecting attempts by some firms to manage—but not neutralize—currency risk.

Global Risk Environment in 2026

The global financial outlook for 2026 compounds these vulnerabilities. Base-case scenarios anticipate that the Federal Reserve and the European Central Bank will begin cutting policy rates, but real interest rates are expected to remain positive. The US dollar is forecast to stay volatile but resilient, rather than experiencing a sharp structural decline.

This environment suggests that while FX borrowing may no longer be prohibitively expensive, exchange-rate volatility could become more damaging. The primary risk for corporates is no longer high interest costs alone, but persistent and unpredictable currency swings.

Key global risk factors for 2026 include:

• Escalating geopolitical tensions,

• Fragmentation in global trade,

• China-driven demand shocks,

• Post-election fiscal debates in the United States.

A sudden deterioration in global risk appetite could quickly tighten FX liquidity, raise refinancing costs, and leave unhedged corporates exposed.

From Corporate Risk to Country Risk

With a net FX open position approaching $183 billion, Turkey’s real sector now represents a macroeconomic risk channel. Analysts argue that exchange-rate stability can no longer be defended solely through monetary policy when corporate balance sheets carry such large FX mismatches.

At this scale, currency shocks risk triggering widespread balance-sheet stress, effectively transferring FX risk from companies to the state and the central bank. This exposure highlights structural weaknesses in the corporate financing model rather than short-term working capital needs.

Data indicate that while external borrowing has surged, trade-linked FX inflows—such as export receivables—have not grown at the same pace. This suggests that FX resources are being generated through borrowing rather than production and export capacity, an imbalance economists view as unsustainable.

A Structural Shift in the FX Equation

In earlier periods, currency depreciation was often seen as supportive for exporters, easing external imbalances. That dynamic has weakened. Today, many Turkish producers and exporters rely heavily on imported inputs, while financing costs remain closely tied to foreign currency.

As a result, exchange-rate increases now tend to inflate costs and damage balance sheets rather than improve competitiveness. Currency volatility has ceased to be a strategic advantage and has become a primary stress factor—even for exporting firms.

Outlook

Entering 2026, Turkey’s real sector faces a structurally more fragile environment. Without a meaningful reduction in FX borrowing, stronger hedging practices, or improved export-linked FX generation, firms remain highly exposed to currency shocks.

Economists warn that in a year marked by global uncertainty, exchange-rate volatility may prove more disruptive than interest rates themselves, making corporate FX exposure one of the most critical risks to Turkey’s broader macroeconomic stability.

By Naki Bakir, DUNYA

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