9/26/2016
Moody’s Downgraded the Credit Note of Turkey Below of the Level of Suitable for Investment
Note reduction expected to lead to consequences like the devaluation of TL, exit of foreign investor from Turkey, outflow of hot money, increasing the cost of financing
Deputy Prime Minister Mehmet Şimşek, “Best response to rating agencies is to further accelerate the structural reforms, to maintain the fiscal discipline. Never stop, continue with the reforms.”
Denizbank Director General Hakan Ateş, "Turkey has shown her strength by keeping the macroeconomical indicators of the economy strong at such a global environment."
TEB Director General Ümit Leblebici, "The foreign borrowing cost of the banks will increase 0.25-0.50 points. Foreign investors never take the credit note as the basis only."
Moody’s, international credit rating agency, downgraded credit note of Turkey from “Baa3” to “Ba1”, and credit note of long term foreign currency basis to below of the level of suitable for investment, noted the outlook of Turkey as stagnant. Moody's, "The reason of note reducing is the increase of foreign financing liabilities risks and the weakening of the growth" Moody’s has made a written announcement that long term credit note of Turkey has been revised as the result of negative monitoring since FETÖ coup d’etat, started on July 18, 2016. In the announcement, the reason of note reduction was shown the increase of risks involved in foreign financing liabilities, the institutional powers and the weajening of the growth. It is also noted that note outlook reflected the big and resiliant economy and strong fiscal discipline of Turkey. Note reduction expected to lead to consequences like the devaluation of TL, exit of foreign investor from Turkey, outflow of hot money, increasing the cost of financing Asessment of Turkey’s country note as suitable for investment by at least two big credit rating agencies mean that Turkish bonds may be bought by relatively conservative funds. Following Moody’s, Standard&Poor’s also share the same view on Turkey to be below of suitable for investment level, only Fitch, among three big credit rating agencies, keeps Turkey at suitable for investment level with ‘BBB-’. Fitch considers credit note of Turkey at the threshold of suitable for investment level for now. The most concrete impacts of note reduction of Moody’s will be felt on Turk Lira assets. Turk Lira, receded at 2.97 border from 2.95 after the decision, expected to be under pressure some more vis-a-vis Dollar. After Turkey lost one of the notes of suitable for investment, it is expected that investors may sell Turkish bonds. In the meantime, note reduction will lead to increase of foreign financing costs. Credit rating agency, to give a note on suitable for investment level, positively affect the investment flow to a country and also the borrowing. Long term international investments funds and financial funds take the note of at least two rating agency as the criteria when making an investment in a country, as to have suitable for investments note. Turkey cannot meet this criteria anymore after this reduction. For Turkey already has savings deficit and have high foreign financing requirement, will have difficulty in obtaining financing from now on. Direct foreign investments are also expected to be negatively affected. Foreign investor inflow which is necessary for employment increase and growth, has receded down to USD 2.2 billion in the first half of year. Growth was announced to be 3.9%, below of estimations, in the second half of year, Government has confirmed that it will not meet the end-year target of 4.5%. According to June data, unemployment is still at double digit figures with 10.2%. Current deficit is also above of USD 28.6 million target with USD 28 billion 931 million. Note reduction may cause to further worsening of these data. Prime Minister Yıldırım, "There is no noteworthy change in Turkey and her economic indicators" Reacting harsh against the nore reduction of Moody’s, Prime Minister Binali Yıldırım has noted that no noticable change has been experienced in Turkey and economic indicators after the coup d’etat and went on to say, “Our works go on like a clock since then. The rating agency, decreased our note was talking about Turkey few days ago that ‘Turkish economy easily went out of 15 July shock’. What is changed in two days? We couldn’t understand. This should be asked. Th economy is not an economy to be put into right track on the basis of reports of 3-5 rating agencies. We do not believe in the fact that these assessments are unbiased. We can clearly see the signs of some directing initiatives for building a perception on Turkish economy. Our source, our hope do not rely on rating agencies.” Deputy Prime Minister Mehmet Şimşek, "Reforms to continue" Commenting on Moody’s decision, Deputy Prime Minister Mehmet Şimşek said, “Best response to rating agencies is to further accelerate the structural reforms, to maintain the fiscal discipline. There is no stop, just continue with the reforms”. Şimşek has also underlined that Turkey foundations were strong and resistant against shocks. Comments of the bankers on note reduction, "Costs will be affected although minimal, foreign investors do note look the credit note only" Denizbank Director General Hakan Ateş commented on Moody’s decision and said that macroeconomic dynamics of Turkey are strong. Underlining entire worlds, primarily the USA and Europe have growth issues, Ateş said, “Turkey has shown her strength by keeping the macroeconomical indicators of the economy strong at such a global environment". Noting Turkey has to look forward after Moody’s note reduction decision, Ateş has underlined that structural reforms have to continue in full speed. Communicating Moody’s surprise note reduction decision is considered a little early, TEB Director General Ümit Leblebici has noted that part of the note reduction was earlier reflected in prices, fluctuation could be experienced for a few days. Underlining the foreign investors do not only look for credit note, Leblebici said, “Investors look for strategy of the country, realized reforms adn the quality of works carried out. As long as we do our best in fulfilling our duties properly, I do not think that we will adversely affected from this decision”. “It will not be correct to say that subject decision will not affect the banking costs”. “Costs will be affected, although minimal. The foreign borrowing costs of the banks will increase on 0.25-0.50 point margin”.
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