Turkish banks’ operating environment improves: Fitch

ISTANBUL

The operating environment for Turkish banks has improved in recent months due to more orthodox macroeconomic policies driving a reduction in macroeconomic and financial stability risks and increased investor confidence, Fitch has said in a report.

The Central Bank has strengthened its foreign-exchange reserves position, dollarization has reduced, and banks’ access to external financing has improved, it added.

Banks have significantly reduced their foreign exchange (FX) swaps with the Central Bank, which had been a significant portion of their foreign currency (FC) liquidity assets, bolstering financial stability, the ratings company noted.

The surge in Turkish bank external debt issuance, totaling $6.5 billion so far this year, underscores renewed international investor confidence, it said.

“Profitability pressures also persist due to regulatory loan growth caps and higher lira funding costs, although we expect it to remain reasonable, and for banking sector capitalization and liquidity buffers to be adequate.”

The net profits of Turkish banks jumped 24 percent year-on-year in the first six months of 2024 to 314 billion Turkish Liras ($9.6 billion), data from the Banking Regulation and Supervision Agency (BDDK) showed this week.

“Banks’ provisioning and profitability buffers should be sufficient to withstand the impact of monetary tightening on asset quality under our base case,” Fitch said.

Fitch analysts said they expect the impaired loans ratio to increase moderately in the banking sector in 2024, driven mainly by unsecured retail lending amidst higher interest rates and weaker GDP growth.