Moody’s downgrades Turkish banks over ‘downside scenario’ risk
ISTANBUL: Ratings agency Moody’s downgraded its credit ratings on 20 Turkish financial institutions due to the increased risk of a ‘ downside funding scenario’ after the collapse of the lira.
Moody’s said the downgrade affected 18 banks and two finance companies.
It comes amid persistent concerns over the health of the Turkish economy, especially the banking sector, after the lira lost a third of its value this month alone.
The downgrades prompted a new slide in the lira, which lost 2.2 per cent against the dollar to trade at 6.3.
Moody’s, along with fellow ratings giant Standard and Poor’s, had earlier this month already cut the debt rating of the Turkish government deeper into junk on the same concerns.
The assessment of 14 banks was downgraded Tuesday by one notch and of four – including major lenders Denizbank and Is bank – by
There is a heightened risk of a downside funding scenario, where a deterioration in investor sentiment limits access to market funding. Moody’s
two notches.
“There is a heightened risk of a downside funding scenario, where a deterioration in investor sentiment limits access to market funding,” Moody’s said, explaining the sharp downgrades.
It noted Turkish banks are highly reliant on foreign currency funding and had market funds of around US$ 186 billion denominated in foreign currency in June 2018, equivalent to 75 per cent of their total wholesale funds.
“This makes the banking system particularly sensitive to potential shifts in investor sentiment, as these foreign currency liabilities must be refinanced on an ongoing basis,” it said.
It said that in the next 12 months around US$ 77 billion of foreign currency bonds and syndicated loans need to be refinanced.
It said if investor sentiment shifted further, banks could need funding from the government or central bank.
The deterioration in the Turkish economy is “fuelling inflation and undermining growth”, said Moody’s, forecasting growth of just 1.5 per cent in 2018 and 1.0 per cent in 2019 It added that the outlook for all Turkish financial institutions was negative to “reflect the risk that prolonged volatility of the foreign currency exchange rate, or a sudden drop in investor confidence, could lead to significant stress on the banks’ foreign currency funding and deposits.” — AFP