By Burcu Arik
ISTANBUL
Turkish banks will feel pressure in the near future on growth and profitability, a Moody's analyst told The Anadolu Agency on Wednesday.
Senior banking analyst Irakli Pipia said "Growth trends and post-provision profitability are expected to come under pressure in the country." Provisions in reserve to support banking operations are required by regulatory authorities.
There are opportunities to be taken advantage of in Turkish banking, Pipia said. "It is important to understand that the Turkish banking system is fairly fragmented compared with its peers."
In June of this year, Moody’s made rating revisions on 11 Turkish banks citing pressures on the standalone credit strength of some of the institutions, a slowdown in real GDP growth and a climate of uncertainty affecting the banks.
Moody's forecast that Turkish banks' asset quality and profitability will weaken and that liquidity will tighten.
Pipia, comparing the Turkish banking sector with Russia, South Africa, India and Poland said: "Turkey has the most conservative banking system among all of these countries. The country's three largest banks represent around 36 percent of total banking assets with comparatively equal pricing power."
According to Moody's, the Turkish banking system's funding structure exposes it to volatility in the external appetite for Turkish assets, which would weigh on banks' growth opportunities and hence profitability. This vulnerability is exacerbated by the banks' increasing credit activity in recent years, with balance-sheet growth outpacing internal capital generation, and a higher refinancing risk. However, Moody's notes that these risks are mitigated by robust capital cushions.
Pipia also pointed out that the Turkish banking system has a low stock of non-performing loans compared to Emerging Market peers, at 2.7 percent as at first half of 2014.
"So far asset quality has remained flat in both the consumer and the corporate segments, although consumer non-performing loans remain slightly higher versus corporate. However, these flat trends are supported by the sale of non-performing loans, which if added back would bring the non-performing ratio to 3.9 percent."
Pipia said that all Turkish banks meet the requirements of Basel III, the global regulatory standard on bank capital adequacy, stress testing and market liquidity risk, and many are in excess of the requirements.
"The introduction of these measures will improve the quality of capital and support more paced growth. However, capital may become a constraining factor for smaller banks, with larger banks benefiting from these regulatory changes."
A large number of Turkish banks are rated at the same level as the government's 'Baa3 negative' credit rating, Pipia said, "Systematic support of the banks by the government depends on the willingness as well as capacity to provide support."
"As part of the G-20 initiatives we are looking into the willingness of the governments, those of European Union countries in particular, to commit taxprayers money to bail-out private banks" he added.
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