Fitch downgrades 20 Turkish banks amid Turkey’s currency crisis

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Ratings agency Fitch downgraded 20 Turkish banks on Monday, warning of the mounting risks confronting the sector in the wake of a recent currency crisis, the Financial Times has reported.

The rating agency said Turkey’s lenders were likely to face pressure on their performance, asset quality, capitalization and liquidity and funding profiles.

It cited the plunge in the lira, which has lost 36 per cent of its value against the dollar since the start of the year, as a key factor weighing on the banks’ ratings, along with last month’s sharp hike in interest rates and an expected slowdown in growth.

As well as downgrading the long-term foreign-currency issuer default ratings of 20 banks, to a negative outlook, Fitch also lowered 12 banks’ viability rating — a measure of a bank’s “intrinsic creditworthiness.”

It said that the downgraded banks — which included major private lenders such as Akbank, İşbank, Garanti and Yapı Kredi as well as state banks such as Vakıfbank, Halkbank and Ziraat Bank — mostly had strong track records and moderate non-performing loans. It added, however: “Risks to financial stability remain significant, given potential unpredictability in the policy framework and Turkey’s large external financing requirements.” All 12 banks whose viability rating was lowered went from BB- to B+.

The agency said the near-term pressure on the ratings of Turkish banks had moderated due to what it termed “the eventually orthodox monetary policy response,” a reference to the central bank’s announcement last month that it would hike its benchmark rate to 24 per cent. It also noted the recent stabilization of the exchange rate and evidence of continued access to external financing, albeit at a higher cost.

The rating agency added, however, that the sector would face challenging conditions in 2019 due to weaker economic growth, higher interest rates and an expected rise in non-performing loans.

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