Fitch Upgrades Outlook for Turkish Banking Sector to ‘Improving’

Reduced External Financing Pressures and Lower Macro Risks Drive Positive Revision

International credit rating agency Fitch Ratings has revised the outlook for the Turkish banking sector from ‘neutral’ to ‘improving,’ citing decreased external financing pressures and reduced macroeconomic risks. According to Fitch’s statement, Turkiye has adopted more traditional macroeconomic policies following the presidential elections in May 2023.

These new policies have alleviated external financing pressures and improved macroeconomic and financial stability, leading to the upgraded outlook for the banking sector. Fitch noted increased investor confidence in Turkiye’s policy framework, resulting in improvements in the Central Bank of Turkiye’s (CBRT) reserves, reduced dollarization, and better access to external financing for banks.

The statement highlighted that banks’ foreign exchange swaps with the CBRT, which constitute a significant portion of the sector’s foreign currency liquid assets, have significantly decreased. These factors are expected to continue supporting financial stability.

Fitch also pointed out that the recent rise in Turkish banks’ bond issuances has eased external financing pressures and restored international investors’ confidence in the sector. Since the shift in economic policy, banks’ risk premiums have decreased, and access to foreign markets has substantially improved.

Additionally, the statement noted that while Turkish banks’ profitability was high last year, a decline is anticipated this year. Nevertheless, the sector’s capital structure remains robust.

Source: Trthaber / Prepared by Irem Yildiz

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