Fitch: Turkish Banks' Loan Growth, External Debt Raise Tail Risk

Wed Aug 20, 2014 9:05am EDT

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Peer Review: Large Private Turkish Banks here LONDON, August 20 (Fitch) Turkish banks' rapid credit growth and higher external debt increase downside risks in case of extremely stressed market conditions, Fitch Ratings says. The four largest private banks - Akbank, Garanti, Isbank and Yapi ve Kredi - have solid capital buffers, although these have weakened steadily. Foreign liabilities have increased, particularly at the short-end, as loan demand has outpaced deposit growth. Increased short-term borrowings and uncertainty over the ability to monetise foreign-currency assets in a stress scenario leave banks more vulnerable to downside risks. The banks have limited foreign currency cash and unencumbered foreign securities, so they would have to draw down on central bank reserves to service external debt. The combined loans of the four banks expanded around 2.5x since end-2008. While reported loan quality metrics are healthy, rapid growth partly helps to mask performance deterioration. There was a slowdown in 1H14 with sector loan growth up a moderate 7.3% and we believe total loan growth will be around 15%-20% for the year, below its recent historical pace. Sharp interest rate changes and a fluctuating lira against major currencies are likely to persist in Turkey. The credit profiles of the four large private banks are sensitive to the volatile operating environment. The banks' broad and diversified franchises are a source of credit strength. Capital is still comfortable by international standards with all four banks reporting Fitch Core Capital ratios in excess of 10%. But the buffers have been eroded since 2010. Growth, tougher regulatory demands and the impact of lira depreciation on foreign currency assets have pushed down regulatory capital ratios. Weaker and volatile capital markets also depressed capital in 2013 where securities are marked-to-market through equity. For more details on the sector, see "Peer Review: Large Private Turkish Banks" published today on www.fitchratings.com. Contact: Janine Dow Senior Director Financial Institutions +44 20 3530 1464 Fitch Ratings Limited 30 North Colonnade London E14 5GN Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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