Moody’s Investor Services has upgraded its outlook for Turkey’s banking sector from negative to stable, a welcome boost to a cash-strapped country undergoing an economic turnaround.
“The operating environment for Turkish banks remains challenging and volatile, weighed down by an anticipated slowdown in economic growth and persistently high inflation,” the US rating agency wrote in a Tuesday update. “Nevertheless, the government’s initial steps to return to orthodoxy in policymaking following the elections in May 2023 is supportive of operating conditions for Turkish banks.”
“Profitability will normalize from the peaks recorded in 2022, but nevertheless remain strong,” Moody’s added. “The banks’ external funding position and dollarisation levels have improved and we expect liquidity, particularly foreign currency, to remain adequate.”
But it warned that the capital of Turkish banks was likely to remain under pressure due to the weakened lira and high inflation. Moody’s said asset risk would remain high and more problematic loans would arise due to these conditions, according to Al Monitor.
The upgrade to the sector outlook comes only days after Moody’s became the first of the top three rating firms to raise the possibility of giving Turkish sovereign debt a better assessment, citing an improvement in the country’s finances.
It also highlights the improvement in Turkey’s standing with foreign investors after President Recep Tayyip Erdogan installed market-friendly bureaucrats to run the $900 billion economy following his reelection three months ago. Growth-at-all-costs policies endorsed by Erdogan before the vote caused runaway inflation and saw investors reduce their holdings of lira-denominated assets, commented Bloomberg.
The Borsa Istanbul Banking Sector Index, a gauge that tracks shares of Turkey’s listed lenders, reversed losses and rose as much as 4.1% to the highest level ever on a closing basis. It was trading 0.8% higher as of 4:42 p.m. in Istanbul, but closed day down 0.6% in line with the sell-off in global markets. Banking stocks dropped half a percentage point at the close, with Yapi Kreid, Akbank and BBVA Garanti Bank seeing very active trading.
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