Turkish banking sector remains structurally stable: S&P

Turkish banking sector is regulated and monitored more favorable than emerging economies, but it is still reliant on short-term external debt, according to global rating agency Standard and Poor’s.        

“Our assessment of [banking] industry risk in Turkey, at [group] six, largely reflects relatively low domestic savings, which partly explains why Turkish banks are more reliant on short-term external debt than their peers in other countries,” S&P said on July 17.    
   
According to the rating agency’s report, Turkey’s banking sector has been classified in group six with Brazil, Italy, Thailand, Slovenia, Brunei, Colombia, Guatemala, Trinidad and Tobago, and Uruguay.        

S&P highlighted moderate household and corporate indebtedness in Turkey along with bank regulation, supervision and governance, comparing it favorably with that of many emerging economies.  
      
“Positively, the [banking] system remains structurally stable and  continues to adequately price risks, as demonstrated by healthy profitability metrics,” the agency said.

Noting the factor of weaknesses, the S &P underlined moderate per capita income and high inflation in Turkey.

“Although banks have granular and well-diversified loan books, their credit risk is accentuated by rapid credit growth in years of fast economic growth and high share of lending in foreign currency,” the agency added.        

S&P holds Turkey’s foreign currency credit rating at BB and its local currency credit rating at BB+ in the long term. The rating agency released latest update for the country in January by lowering Turkish economy’s outlook to “negative” from “stable.”