Fourth update in our series on the Turkish investment fund crisis.
Pressure that began in the fund market is now hitting operating companies with no connection to the scandal, through bank demands to top up collateral on loans secured by shares.
The mechanism
Many Turkish companies borrow against pledged securities, either their own shares or shares of other listed companies they hold. When those prices fall, the bank formally records that the collateral no longer covers the loan and issues a margin call, a demand to add collateral or replace it. According to Takasbank data, such calls reached 1.76 billion lira on 16 September, a three-month high (a comparable level was last seen in mid-June, at the peak of tension around the Strait of Hormuz).
A company facing a margin call has two options: find a free asset to substitute as collateral, or sell something liquid to meet the demand. Banking sources report that many companies have no spare asset on hand and sell listed shares regardless of price. That pushes those and related shares down further, triggering new margin calls for other holders of the same collateral. The loop runs independently of whatever happens in the funds that started the original crisis.
Why this may be more dangerous than the fund crisis itself
The liquidation of 131 funds follows a defined procedure with appointed executor banks and a deadline. The collateral pressure has none of that: no procedure, no deadline, no regulator explicitly assigned to it. Banking sources say the capital markets regulator is focused on the funds and is not addressing this separately, and that this line of pressure will likely outlast the fund liquidation itself.
The sovereign wealth fund's exchange purchases, covered in our previous update, are concentrated mainly in BIST30 names and banking shares. That support does not extend to the broader front of mid- and small-cap stocks, which is exactly where pledged shares are concentrated.
What this means for operating businesses
A company with no involvement in the fund scandal, holding none of the affected units and unconnected to the seven compromised managers, can still come under pressure if its own shares or those of related entities serve as loan collateral. Warning signs worth checking: a loan collateralised by listed shares (own or third-party); no free liquid assets available for a quick substitution; collateral concentrated in a small number of names exposed to broad selling pressure.
Sensible steps: assess in advance the buffer between current collateral value and the coverage required on your credit lines; discuss with your bank whether temporary flexibility on the coverage ratio is available (the regulator has already granted a comparable temporary relief to exchange participants, lowering the margin equity requirement from 35% to 20% until 2 October for client positions, and banks may be open to a similar conversation on corporate loans by analogy); do not wait for a formal margin call if the buffer has already narrowed, raise it with the bank early.
Context: why this is probably not a systemic risk
An academic comparison offered this week is useful for a level-headed read: the episode shares a structural feature with the 2008 crisis, risk that regulation failed to price, and a state forced to absorb the cost of stabilising it. But the scale of spread is fundamentally different. Turkey's capital market is shallow, the overwhelming share of household savings sits in banks rather than securities, and even the troubled fund segment is under 10% of an already limited market. Collateral pressure is real and painful for specific companies, but it is spreading within an already small circuit, not through the financial system as a whole.
Does your company carry loans secured by shares, or do you want your exposure to current market volatility assessed? Contact us.