Turkish banks’ prospects improve, says Fitch in a report

LONDON

Turkish banks face improved prospects following the recent sovereign rating upgrade, and reduced near-term macroeconomic and financial stability risks are driving reduced financing pressures and renewed investor confidence, Fitch Ratings has said in a new report.

Refinancing risks for Turkish banks have diminished due to a more conventional macroeconomic policy mix, Fitch said.

This is demonstrated by increased access to external markets and a rise in debt issuance, it added.

“However, banks remain exposed to investor sentiment and significant external foreign-currency wholesale funding, with a substantial share of short-term debt,” it said.

The rating company noted that deposit dollarization has also decreased, including a reduction in the share of FX-protected deposits.

Fitch expects tighter monetary policy to exert modest pressure on banks’ asset quality, with a moderate increase in the sector's impaired loan ratio.

Turkish banks are generally adequately capitalized, supported by provisioning buffers and pre-impairment profits, according to the report.

“Regulatory forbearance on foreign-currency risk-weighted assets and securities portfolios also supports reported capital adequacy ratios. However, capitalization remains sensitive to macroeconomic risks and lira depreciation,” Fitch said.

It expects profitability to remain reasonable but weaker than in 2023, with potential impacts from hyperinflationary accounting, should it be implemented, from 2025.