Fitch Ratings has cut the Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) of Turkey’s state-run Halkbank, citing the nation’s declining foreign currency reserves and the risk of US fines for alleged Iran sanctions-busting, the Ahval news website reported.
The ratings agency also reduced the LTFC IDR outlook for state-owned Halkbank and Vakıfbank, as well as for Garanti BBVA, one of Turkey’s biggest listed banks, to “negative” from “stable,” it said in a statement on Tuesday.
“The downgrade of Halk and the negative outlooks on Ziraat and Vakıfbank reflect the sovereign’s weaker foreign currency reserves position, and therefore reduced ability to support the banks in foreign currency in case of need,” Fitch said.
Turkey’s central bank has spent tens of billions of dollars of its foreign currency reserves to support the value of the lira in recent months. State-run banks have helped the monetary authorities defend the lira by engaging in cross-currency swaps.
Fitch said it cut the outlook of Garanti BBVA as Turkey’s weaker external finances increased the risk of government intervention in the banking industry, which might make it more difficult for banks to service their foreign currency debts.
“Garanti BBVA’s ratings are underpinned by potential shareholder support but capped at the ‘B+’ level due to our assessment of intervention risk,” Fitch said.
Risks to the ratings of all seven major Turkish banks Fitch covers, which also include Akbank, İşbank and Yapı Kredi, have increased due to the economic downturn in Turkey and financial market volatility, the ratings agency said.
The economic and financial outlook for Turkey “heightens pressure on lenders’ asset quality, capitalisation, performance, funding and liquidity,” Fitch said.
“Pressure on state banks’ ratings is greatest given their recent more rapid growth and weaker (at Halk and Vakıfbank) loss absorption capacity, notwithstanding their pending capital increases.”
Fitch said Halkbank’s ratings were particularly at risk due to possible US fines, which could be imposed once an investigation into its alleged role in breaking sanctions on Iran is complete. It said there was uncertainty surrounding the sufficiency and timeliness of financial support from the government should such a punishment be carried out.