Turkey’s credit rating remains at risk of cut, says Moody’s

ISTANBUL - Reuters

Moody's said Turkey was likely to be adversely affected by slower growth and fragile investor confidence.

Rating agency Moody’s said Nov. 5 that Turkey’s sovereign credit rating was unlikely to be upgraded soon and remained at risk of a cut.

Moody’s currently assigns Turkey its lowest investment grade rating, Baa3, with a negative outlook.

At a conference in Istanbul, Moody’s senior analyst Alpona Banerji warned that Turkey’s reliance on foreign capital to cover its large current account deficit, seen as the economy’s key weakness, left the rating vulnerable to a downgrade.

“Increased political instability and intensified pressures on the country’s external finances, thereby heightening the risk of a sudden and sustained halt in foreign capital flows ... could change the rating down,” she said.

Banerji added that the rating outlook would move back to stable if Turkey’s “domestic and geopolitical tensions abated, investor confidence in the economy improved, and pressure on the external finances eased”.

Market players said they did not expect any rating change in the near future. Moody’s last rating action was to change the outlook to negative from stable in April.

“Those statements suggest that the agency still weighs risks more than the gains since the previous outlook revision in April, like alleviated pressure over current account deficit due to lower oil prices and more stable political environment,” brokerage house Deniz Invest said in a research note.

“We do not expect any rating or outlook revision in either today’s conference or the rating agency’s review on Dec. 5.”

The rating agency said on Nov. 4 that Turkey’s government finances were a credit strength, but that they were likely to be adversely affected by slower growth and fragile investor confidence in a report.

“External vulnerabilities continue to weigh on the credit profiles of Turkey’s sovereign, its banking and its corporates,” Moody’s said in the report.

It said Turkish companies would be particularly hard hit by the slower growth while a reduction of capital inflows would reduce their access to funding.