Banks Remain a Sore Spot For The Turkey ETF

“The downgrades of the banks’ VRs reflect increased risks to their stand-alone credit profiles over the rating horizon since the last review of these institutions on 20 July 2018,” said Fitch. “In Fitch’s view, the banks’ performance, asset quality, capitalisation and liquidity and funding profiles are now more likely to come under pressure as a result of the further depreciation of the Turkish lira (by about 20% against the US dollar since the last rating review), the spike in interest rates (driven by the increase in the policy rate to 24% from 17.75% on 13 September) and the weaker growth outlook (Fitch has revised downwards its forecasts for GDP growth to 3.8% in 2018 and 1.2% in 2019).”

To help remediate the currency crisis, the Turkish central bank lowered the reserve requirement for banks by 250 basis points to improve liquidity conditions.

“Fitch believes that near-term pressure on the banks’ ratings has moderated as a result of the eventually orthodox monetary policy response, the stabilisation of the lira exchange rate, recent evidence of external market access – albeit at a higher cost – and the absence of significant deposit outflows since mid-August,” according to the ratings agency.

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