Fitch: Optimistic Outlook and Improvements in Capital Structure Observed in Turkish Banks

Fitch Ratings highlighted significant findings in its recent assessment of Turkish banks, emphasizing the resilience of the banking sector against changing macroeconomic and financial conditions. The agency noted that Turkish banks are facing improved expectations following recent rating upgrades, as decreasing short-term macroeconomic and financial stability risks are leading to reduced financing pressures and a recovery in investor confidence.

Impact of Macroeconomic Policies
Fitch observed that refinancing risks for Turkish banks have decreased with the adoption of a more traditional macroeconomic policy mix. This is evidenced by increased access to external markets and a rise in debt issuance. Due to potential risks to the stability of the Turkish lira, Fitch expects that authorities will continue to gradually relax the foreign currency-protected deposit mechanism. This aims to mitigate volatility in financial markets and manage exchange rate risks.

Capital Structure and Profit Margins
Fitch indicated that Turkish banks possess a generally adequate capital structure supported by reserve buffers and pre-impairment profits, while profitability is expected to remain at a reasonable level, albeit potentially demonstrating weaker performance compared to 2023. Starting from 2025, the potential impacts of inflation accounting are anticipated. Additionally, it was noted that banks’ net interest margins are under pressure due to high funding costs, legal limitations on loans, and relatively low inflation-linked security income.

Asset Quality and Non-Performing Loans
Fitch expects the tight monetary policy to exert moderate pressure on banks' asset quality, and a mild increase in the ratio of non-performing loans across the sector may be observed. However, the expectation that the overall deterioration in asset quality will remain manageable in relation to banks' profitability and reserve buffers indicates that the general condition of the sector is likely to be maintained. Within this framework, Turkish banks are positioned to sustain capital adequacy under current conditions and manage potential risks effectively.