Turkish banks are able to withstand moderate shocks to their asset quality and performance, largely due to their loss-absorption capabilities, this is why rating Outlooks for Turkish banks continue to be Stable despite recent sharp currency and interest rate shocks that will make 2014 a relatively tough year, Fitch said in a statement on Thursday.
Most of Turkish banks are able to maintain healthy capital ratios under a two-year stress scenario which scenario assumes slower asset growth from lower economic growth and profit contraction largely from squeezed margins and mounting impairment charges, the rating agency commented. Corporates that have borrowed in TRY from local banks may face stress as a result of foreign currency borrowing from abroad, Fitch said, adding that commercial banks most exposed to foreign-currency lending are BankPozitif, Kuveyt Turk and Garanti Bank.
Higher interest rates make a return to the rapid credit growth seen during the first half of 2013 less likely and this should allow banks to take stock of asset quality as portfolios season, according to Fitch. However, higher rates will raise debt-servicing costs and could lower economic growth, both of which may lead to a rise in non-performing loans, particularly for SMEs, the rating agency stressed.
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