Agencies warn of loan risks

ISTANBUL

The rapid loan growth of recent years has made Turkish  banks’ asset quality vulnerable to any potential economic  slowdown, international rating agency Standard & Poor’s (S&P) said on Feb. 17.

Moody’s also issued a report on loan risks for small and medium enterprise (SME).

In its report on the banking sector, S&P, which recently revised the country’s economic outlook to negative from stable, said that despite the relative strength of the banks’ profitability, capital structure and asset quality, rapid loan growth had begun to pressure the banks. “The banks’ operation environment deteriorated because of the rising domestic political risk and the impact of Fed’s bond purchase tapering that slashed economic growth,” the report added.

Drawing attention to the fact that the loans’ ratio to gross national product has soared over 20 percent to approach 60 percent over the past four years, the agency said this growth was expected to continue, albeit slower, and added that Turkish banks were more fragile than ever, as the country braces for slower growth.

In a statement to explain its decision to downgrade the economic outlook of the country on Feb. 7, the agency had said Turkey’s economy would probably grow at an average of 2.2 percent this year and next, cutting its forecast from 3.4 percent.

Meanwhile, S&P’s fellow global rating agency Moody’s issued a separate report yesterday on Turkey’s loan performance.

Moody’s said the Central Bank’s massive interest rate hike would have a bigger impact on SME loans than housing loans.

The Moody’s report stressed that higher interest rates would influence SME loans more, as they are more sensitive to economic contraction and are also shorter term, meaning that debts are financed more frequently.