Fitch expects Turkish banks’ profitability to improve next year

ISTANBUL

Turkish banks will see stronger profitability next year as the central bank moves into a rate cut cycle, Fitch Ratings’ director for banks told Anadolu.

Ahmet Kilinc said Fitch raised its operating environment score for Turkish banks to match the country rating, speaking on the sidelines of the Fitch on Türkiye event in Istanbul on Tuesday.

The event gathered senior analysts from Fitch Ratings’ sovereigns, corporates, financial institutions and sustainable finance units.

Kilinc said the shift in policy was the main driver of the rating revision.

“When we look at banks in Türkiye, we see capital adequacy is sufficient, with the CET1 ratio around 14-14.5%. Banks have also made many issuances that will support total capital adequacy, and the fact that these are in foreign currency provides protection against possible currency risks,” he said.

He noted an expected increase in non-performing loans but said reserves remained adequate and asset quality kept non-performing loans at manageable levels.

Kilinc added that access to foreign markets was another key factor. “We saw many banks issuing bonds, which shows they have access to foreign markets and that refinancing risks have decreased, but despite this, foreign currency deposits remain very high,” he said.

“Risks in accessing foreign markets decreased despite high refinancing needs, yet banks’ short-term foreign debt is still high,” he added.

Kilinc said the central bank’s policy rate cuts would support banks’ net interest margins, as high interest rates weigh on asset quality while declining rates could bring some relief.

“Another important point is that there is around $240 billion in foreign currency deposits,” he said.

“All eyes are on any expected movement in the exchange rate, and while interest rates are going down, we need to look at macro and financial stability, too,” he added.