Fitch Ratings lowered the outlook for nine Turkish banks to stable from positive on Tuesday, days after cutting Turkey’s own outlook, saying the banks face growing pressure from the country’s weaker financial position and risks tied to the war involving Iran.
The rating agency kept the banks’ long-term foreign and local currency ratings unchanged at BB-, meaning it did not lower the ratings themselves, but no longer sees their credit outlook improving in the near term.
The outlook changes follow Fitch’s April 10 decision to revise Turkey’s sovereign outlook to stable from positive. That earlier move came after a steep fall in the country’s foreign currency reserves, which Fitch said dropped as the Central Bank of the Republic of Turkey intervened to support the lira. Fitch also warned that a longer regional conflict could put more pressure on Turkey’s external finances and inflation because the country depends heavily on imported energy.
The banks affected are state-owned lenders Ziraat Bank, Halkbank, VakıfBank, the Turkish Export Credit Bank (Türk Eximbank) and the Development and Investment Bank of Turkey, as well as Emlak Participation Bank, Vakıf Participation Bank and Ziraat Participation Bank, along with privately owned development lender the Industrial Development Bank of Turkey.
Fitch said the move mainly reflects the close ties between Turkish banks and the state. According to the agency, several of the banks are state-owned, play key roles in government policy or are considered important to the financial system, which makes their ratings closely linked to the country’s own credit standing.
The agency said it believes the Turkish government still has a moderate ability to support the banks if needed, despite the recent drop in reserves. But it added that any further weakening in Turkey’s own credit profile could lead to fresh pressure on the banks.