RPT-Fitch: Turkish Banks' Robust Buffers Offset Near-Term Risks
(Repeat for additional subscribers)
Sept 30 (Reuters) - (The following statement was released by the rating agency)
Turkish banks have robust buffers to absorb near-term challenges from lower economic growth, a weaker lira and higher interest rates, Fitch Ratings says. We believe their credit profiles will suffer in the coming quarters from a weaker operating environment, but only moderately. A key reason for credit resilience is that Turkish banks have strong loss-absorption cushions. The sector's capital ratio, despite having fallen over the last few years, remains a solid 16% and comprises mostly Tier-1 capital.
Solid pre-impairment profitability provides an additional defence, and has ensured that capital is built up through retained earnings. NPLs - currently a low 2.8% - tend to be well provisioned, which leaves the banks with considerable profit and capital cushions against potential losses.
Slower economic growth will inevitably weaken asset quality as portfolios (which have expanded rapidly) season. The lira's recent depreciation and higher interest rates will increase borrowers' vulnerability, and so we expect non-performing loans to rise by a moderate 100bp-200bp by end-2014. SME lending, consumer finance and foreign-currency corporate lending are likely to be the key sources of risk.
A economy which is still growing, together with moderate corporate and household debt, limited real house price growth and the absence of foreign-currency consumer lending, should support loan performance, despite the rapid credit growth since 2006.
Margins are likely to be under pressure from the interest-rate hikes and market volatility. Banks have encountered little difficulty in rolling over funding, although future financing is likely to prove more expensive. We expect the squeeze on margins to be short-lived as lira loans typically have short-term repricing maturities, and good efficiency should offset some of the pressures on profitability.
Our stable outlook for Turkish banks could be threatened if the economic slowdown is worse than anticipated, with further pressure on the lira and further interest-rate hikes. This could put greater-than-expected pressure on banks' asset quality, potentially resulting in negative rating action.
Fitch will present its outlook for Turkish banks in a series of conferences, "Emerging Europe 2013" on 2, 3 and 4 October in Frankfurt, Paris and London.
- Housing, jobs data weaken, but overall economic picture still upbeat
- Putin critic Khodorkovsky free after pardon, heads for Germany |
- Target cyber breach hits 40 million payment cards at holiday peak |
- Pizza outlet attacked as India, U.S. fail to cool diplomat row |
- New York Mayor-elect's reputation for lateness parodied on Twitter