Loan growth and external debts raise Turkish banks’ vulnerabilities: Fitch

LONDON

Turkish banks’ rapid credit growth and higher external debt increases downside risks in the case of extremely stressed market conditions, Fitch Ratings has said in its latest statement over risks looming over the country’s economy.

“Increased short-term borrowings and uncertainty over the ability to monetize foreign currency assets in a stress scenario leave banks more vulnerable to downside risks,” the agency said Aug. 20.

Focusing on Turkey’s four largest private banks – Akbank, Garanti, İşbank and Yapı Kredi – the agency said they have solid capital buffers, although these have steadily weakened.

“Foreign liabilities have increased, particularly at the short-end, as loan demand has outpaced deposit growth,” it said.

According to Fitch, the banks have become obliged to draw down on Central Bank reserves to service external debt, as they have limited foreign currency cash and unencumbered foreign securities.

“The combined loans of the four banks have expanded around 2.5 times since the 2008-end,” the statement added.

The four largest private banks’ credit profiles are sensitive to the volatile operating environment, it also said.

The institution, which has recently become the target of senior government officials, has also predicted “sharp interest rate changes and a fluctuating Turkish Lira against major currencies are likely to persist in Turkey.”