Turkish banks’ robust buffers offset near-term risks, says Fitch

LONDON

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Turkey’s banks have robust buffers to absorb near-term challenges from lower economic growth, a weaker lira and higher interest rates, Fitch Ratings said yesterday by a written statement.

“We believe their credit profiles will suffer in the coming quarters from a weaker operating environment, but only moderately,” the rating agency said.

Slower economic growth will inevitably weaken asset quality as portfolios (which have expanded rapidly) season, according to Fitch.

The agency noted that the lira’s recent depreciation and higher interest rates would increase borrowers’ vulnerability, and so they expect non-performing loans to rise by moderate levels by end-2014. SME lending, consumer finance and foreign-currency corporate lending are likely to be the key sources of risk, they said, adding that an economy which was still growing, together with moderate corporate and household debt, limited real house price growth and the absence of foreign-currency consumer lending, should support loan performance, despite the rapid credit growth since 2006.

Banks have encountered little difficulty in rolling over funding, although future financing is likely to prove more expensive.

“Our stable outlook for Turkish banks could be threatened if the economic slowdown is worse than anticipated, with further pressure on the lira and further interest-rate hikes. This could put greater-than-expected pressure on banks’ asset quality, potentially resulting in negative rating action,” the rating agency said.