Abroad   Research

4/8/2016

Moody’s Stated that Turkish Banking System’s Outlook is Negative

From the Moody’s Report: “Banks face challenges from a slower economic growth, increasing dollarisation of liabilities and volatile sentiment towards emerging markets. Turkish banks will experience narrowing net interest margins due to the banks' rising borrowing costs”…

International credit rating agency Moody’s stated that the Turkish banking system’s outlook is negative as a result of economic slowdown and a rise in funding costs in the report titled “Banking System Outlook”.

It is stated in the report of Moody’s that banks face challenges from a slower economic growth, increasing dollarisation of liabilities and volatile sentiment towards emerging markets, and that the Turkish banking system’s outlook is negative as a result of these factors.

It is stated that deterioration is particularly expected in loans for consumers and small to mid-sized companies (SMEs). It is pointed out that though corporate loans have so far proven resilient to the economic slowdown, they remain vulnerable to a combination of the depreciation of TL and a likely increase in their borrowing costs. It is stated that profitability of Turkish banks will face pressure from narrowing net interest margins due to the banks' rising borrowing costs.

It is stated that the probability of government support for troubled banks will “diminish gradually” with some legislative developments planned during 2016. It is furthermore reminded that the Central Bank's own foreign currency reserves (excluding bank reserves and gold reserves) have declined considerably over the past year, which could make the authorities' support for the banking system “more selective”.

According to the Moody’s Report, Turkish banks will depend heavily on capital market borrowing to finance a substantial part of their lending.

Senior Credit Officer at Moody's: “We expect delinquencies to rise to a level between 3.5 percent and 3.8 percent”

Irakli Pipia, Senior Credit Officer at Moody's made the following statement: “While muted economic prospects will weigh on loan performance and profitability, the banking system remains well capitalized. We expect delinquencies to rise to about 3.5% or 3.8%, in light of the TL’s depreciation and the slower economy.”