Fitch Ratings: Refinancing risks for Turkish banks have increased

Refinancing risks for Turkish banks have increased following the replacement of Turkey’s central bank (CBRT) governor and the ensuing market volatility and sharp depreciation in the lira.

Fitch Ratings expects banks’ external debt (XD) to fall in 2021 and the cost of foreign funding to rise given the change in investor sentiment and increased risk premium amid a more risk-averse global environment.

Sector foreign-currency (FC) liquidity is sufficient, however, to cover a short-lived market closure and a moderate outflow of FC deposits. Banks’ Short-Term Borrowings IncreasedTurkish banks’ external debt (XD) of USD137 billion at end-2020 was USD5 billion lower than at end-2019 and USD42 billion than at end-1H18.

This reflected continued XD repayments and lower rollover rates due to lower FC needs and exchange rate effects. However, banks’ short-term (ST) XD (maturing within 12 months) increased to USD86 billion at end-2020, from USD82 billion at end-2019.

This reflected higher upcoming redemptions, larger lira deposits from abroad and also increased FC borrowings in late 2H20 amid more favourable market conditions.

We estimate banks’ ST FC debt service requirement in 2021, in the event of a market shutdown, has also increased to between USD45 billion and USD50 billion.

This amount is net of stable funding sources, including intragroup facilities, lira XD and some foreign customer deposits.