Istanbul: The risks in the Turkish banking sector, as well as the current neutral outlook, remain manageable despite expectations of a lower policy rate and improved but lower-than-expected net interest margins by year-end, a Fitch Ratings director told Anadolu.
According to Anadolu Agency, Ahmet Kilinc, director and head of Turkish banks at Fitch Ratings, said recent developments in Trkiye's domestic market and the global implications of Washington's tariffs have affected the outlook of the Turkish banking sector. He explained that while the decline in interest rates before March raised expectations for improved interest margins, domestic market volatility has hindered these prospects.
Kilinc noted that Trkiye's Central Bank raised its policy rate to 46% and provided banks with funds at a 49% upper band rate. He anticipates a lower policy rate of 33% by the end of the year and believes that banks' net interest margins will improve, albeit less than initially expected. He highlighted that high interest rates have increased risk costs.
The Fitch Ratings director stated that they have been closely monitoring the asset quality of banks in the second half of the year. Despite the challenges, Kilinc remains confident that banks can manage their risks, which is why the neutral outlook for Turkish banks has been maintained. He mentioned that the operating environment score remains positive, and while profitability could be better, recent market volatility has disrupted the positive trend, elevating the credit default swap to around 300 basis points.
Kilinc expressed concerns about Turkish banks' high short-term external debt, which poses a refinancing risk, but noted that this is not a new issue. He emphasized the importance of market access, which was strong last year. Many banks issued Eurobonds and capital-like loans, and syndicated loans have been renewed at over 100% since March, indicating continued access to external financing.
Despite the challenges posed by the US interest rate policy, tariffs, and geopolitical risks, Kilinc believes Turkish banks could be indirectly affected, impacting the sector's outlook. However, he added that the impact of tariffs on the Turkish banking sector is likely to remain limited.