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Turkish banks to see more asset quality weakening, says Fitch Ratings report

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Turkey’s banks are set to continue suffering from exposure to troubled industries such as the construction sector and energy, the Ahval news website reported, citing a Fitch Ratings report.

Credit quality remains under pressure in Turkey and in the Gulf Cooperation Council (GCC) region, Fitch said in the report, which focused on banks in emerging markets.

“Further asset quality weakening at Turkish banks is expected from high foreign currency lending, Stage 2 and restructured loans, and exposure to some troubled sectors (such as construction and energy),” Fitch said.

Turkey’s banking industry is experiencing a sharp increase in non-performing loans after a currency crisis last year made foreign currency borrowing more difficult to repay and sent economic growth into a tailspin. Turkish firms took out tens of billions of dollars in foreign loans after the global financial crisis of 2008, which had made borrowing cheaper and more accessible.

Growth projections for Turkish lending next year will be driven mainly by lira-denominated loans, Turkey’s central bank said in a statement on Monday, when announcing new incentives to direct capital to the manufacturing industry. Banks in Turkey have a “robust capital and liquidity structure,” the central bank said.

The economic downturn in Turkey has prompted many companies to enter talks with banks to restructure their loans. Some have started to borrow in lira rather than foreign currency.

Fitch said the balance of risk for emerging market banks would likely remain moderately negative next year, given concerns about trade protectionism and economic growth.

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