New York-based Fitch Ratings, one of the big three credit ratings agencies, has downgraded the support-driven Long-Term Foreign Currency Issuer Default Ratings (LTFC IDRs) of 12 foreign-owned Turkish banks and their subsidiaries, and two state-owned development banks, according to a press statement issued on their website.
The agency has also downgraded the Long-Term Local Currency IDRs of 22 banks and their subsidiaries. The outlook on all banks’ Long-Term IDRs is negative. Viability Ratings (VRs) are not affected as a result of these actions.
The rating actions follow the downgrade of Turkey’s sovereign rating on July 12, 2019
Fitch said that “the dismissal of Turkey’s central bank governor heightens doubts about the authorities’ tolerance for a period of sustained below-trend growth and disinflation that Fitch considers consistent with a rebalancing and stabilization of the economy, and highlights a deterioration in Turkey’s institutional independence and economic policy coherence and credibility.”
President Recep Tayyip Erdoğan fired Murat Çetinkaya on July 6 with a presidential decree after his refusal to lower interest rates.
“The downgrades of the foreign-owned Turkish banks’ LTFC IDRs to ‘B+’ from ‘BB-‘ reflects increased risk of government intervention in the banking sector in case of a marked deterioration in Turkey’s external finances,” Fitch said.
“We continue to view the risk of intervention that would prevent banks from servicing their [foreign currency] obligations to be slightly higher than that of a sovereign default, and this result in these ratings being capped one notch below the sovereign LTFC IDR.”
The agency also downgraded Turkish insurance company Anadolu Sigorta’s Insurer Financial Strength (IFS) Rating to ‘BB’ from ‘BB+’ with a negative outlook.