Fitch downgrades outlook for foreign-owned banks in Turkey
Credit rating agency Fitch revised its Outlooks on Long-Term Foreign-Currency Issuer Default Ratings (LTFC IDRs) of nine foreign-owned banks in Turkey.
ING Bank, Denizbank, QNB Finansbank, Türk Ekonomi Bankası, ICBC Turkey, Alternatifbank, Burgan Bank, Kuveyt Türk and Türkiye Finans were affected by Fitch’s reduced outlooks from “stable” to “negative”, according to a statement published on Wednesday.
“The Negative Outlooks reflect Fitch's view that the weakening of Turkey's external finances is increasing the risk of government intervention in the banking sector, which could impede the ability of all banks in the sector to service their foreign currency obligations,” the statement said.
“Fitch's view of government intervention risk caps the banks' LTFC IDRs at 'B+', one notch below Turkey's rating,” the rating agency said, adding that their Viability Ratings (VRs) remained unaffected by the rating action.
Turkey’s central bank has spent tens of billions of dollars of its foreign exchange reserves to bolster the Turkish lira. At the same time, the authorities have sought to starve trading in the offshore swaps market to stop short-selling of the currency.
The lira had slumped to an all-time low of 7.269 per dollar on May 7, as concerned investors and local deposit holders sold the currency.
Fitch said on Wednesday it acknowledged Turkey's high external funding requirement – a large share of which is sourced through the banking sector – creates a significant incentive to retain market access and avoid capital controls”.
Fitch announced on Tuesday it reduced the LTFC IDR outlooks for Turkey’s state-run Halkbank, Vakıfbank and Garanti BBVA from “stable” to “negative”, which the rating agency said reflected the banks’ weaker position in foreign currency reserves position, and “therefore reduced ability to support the banks in foreign currency in case of need”.