Turkish banks face tougher 2015, but outlook stable: Fitch report

LONDON

Ratings agency Fitch has warned Turkish lenders against tougher conditions in the new year, but affirmed the country's outlook as stable.

Modest economic growth, competition for deposits and moderate asset quality deterioration will create a tough operating environment for Turkish banks in 2015, but solid capital and profitability buffers mean the outlook will remain stable, ratings agency Fitch said in a statement.

“The sector’s increased reliance on short-term, foreign-currency funding represents the biggest risk to the outlook,” the agency said, repeating its previous warnings.

“Our base case is for economic growth over the medium term to remain below recent highs, with ongoing but manageable interest- and exchange-rate volatility and continued access to international funding,” it added.

The agency warned that asset quality might deteriorate “due to seasoning of loan portfolios, increased consumer indebtedness and the depreciation of the lira, which may weaken the debt servicing capacity of foreign-currency borrowers.”

Asserting that Turkish lenders’ foreign debt has almost trebled since the end of 2008 and has become much more short term, the agency cautioned against the potential impact of an abrupt change in investor sentiment cutting the banks’ market access.

However, Fitch also added that it “[believes] that under most scenarios foreign-currency liquidity would be sufficient.”

The agency stressed that high interest rates and competition for deposits will raise funding costs but margin pressure should only be moderate, as banks have successfully re-priced loans.