Fitch: Political uncertainty creates risks for Turkish banks

LONDON

Prolonged political uncertainty in Turkey, which could aggravate tensions over economic policy, would create additional risks for the country’s banks, although the deterioration in the operating environment will be moderate, said Fitch Ratings in a written statement on June 12.

“Slower economic growth, lira depreciation, higher interest rates and weaker investor sentiment towards Turkey could all weigh on banks’ credit profiles,” it said, adding that the deterioration in the operating environment will be moderate and the banks have capital and liquidity buffers to absorb mild shocks.

The banking sector’s core and total capital ratios were a sound 12.9 percent and 15.1 percent at end-April 2015.

These ratios are likely to have fallen since then due to the depreciation of the lira against the U.S. dollar and in a stress scenario involving a further 20 percent fall in the local currency, core ratios could weaken, according to the agency.

“However, this is likely to be offset partly by Turkish banks’ ongoing internal capital generation, and capital ratios should remain sound, in our view. These would only come under significant pressure in case of material loan losses,” it added.