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Fitch Warns New Policies Create Risks to Turkish Banks

TURKEY
  • challenging Turkish operating environment, deterioration in domestic confidence and further potential weakness in the Turkish lira amid monetary policy uncertainty and high inflation create risks to macroeconomic and financial stability
  • This is negative for banks' credit profiles, could increase the likelihood of government intervention in the banking system and drives our 'deteriorating' outlook for the sector in 2022.
  • The recovery of the lira and reduced deposit dollarisation, if sustained, would be positive for Turkish banks, but the scope, impact and implications of the programme are uncertain. Negative real rates, monetary policy uncertainty and inflationary pressures could consequently continue to drive currency volatility in 2022.
  • Turkish banks are vulnerable to exchange-rate volatility due to significant refinancing requirements and deposit dollarisation, both of which create risks for foreign-currency liquidity, and high sector foreign-currency lending, where a weaker lira can negatively affect asset quality.
  • capital ratios are eroded by lira depreciation due to the inflation of foreign-currency risk-weighted assets, although we expect regulatory forbearance (the use of a rolling 252-working-day average exchange rate and - from December - the exclusion of mark-to-market losses in capital adequacy calculations) to continue to support reported capital ratios given lira weakness.
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market NewsHomepage
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market NewsHomepage

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