Japan Credit Rating confirms Turkey’s rating, outlook

ISTANBUL

REUTERS photo

Japan Credit Rating (JCR) has confirmed Turkey’s long-term issuer rating as “BBB-” and its outlook as “stable.” 

“The ratings are supported by the country’s largest economic foundation in the Middle East that could be a good export base to the EU and Islamic countries and its sound public and banking sectors’ buffer against shocks,” the rating agency said in a written statement on Oct. 7. 

It also noted that Turkey’s domestic banks, the principal borrowers of the country’s external debt, have been managing to roll over their external borrowings well, and may likely benefit from the monetary easing in advanced economies that is expected to continue for some time to come. 

“The public and banking sectors maintain their buffer against shocks that they have built in the past. In light of the above, JCR has affirmed its ratings with ‘a stable’ outlook,” added the agency. 

The country still faces a number of critical issues, including questions as to whether authorities can sustain international market confidence so as to enable domestic banks to smoothly roll over their external borrowings, and in the medium term, whether the government can structurally improve macroeconomic imbalances and gradually reduce external financing needs by improving the investment environment through methods that include alleviating security concerns and accelerating structural reforms before the global monetary easing comes to an end, said JCR. 

Moreover, JCR said it would monitor foreign exchange liquidity, the status of domestic banks’ rollover of external borrowings and the balance between short-term external debt and foreign exchange reserves. In terms of financial stability, the ratings agency also said it would look at the corporate sector’s resilience to currency depreciation, including the extent of their hedging coverage, given the growing foreign currency-denominated borrowings in the corporate sector, especially by large companies.

A senior representative from JCR said Turkey had preserved its investable position, opposing the general sentiment following the rating cut by Moody’s, state-run Anadolu Agency reported on Sept. 27. 

Moody’s cut Turkey’s long-term issuer and senior unsecured bond ratings by one notch to the speculative or “junk” level of Ba1 with a “stable” outlook late on Sept. 23, citing risks related to the country’s sizeable funding requirements and a slowing in its GDP growth and institutional strength.

JCR Eurasia President Orhan Ökmen noted Turkey’s highly risky position in fulfilling its foreign funding requirements, but stressed that there had been no further deterioration in the field.