ANKARA: The role of banks as Turkey’s largest external borrowers, with their debt the primary source of finance for the country’s considerable current account deficit (CAD), leaves them vulnerable to sharp changes in investor sentiment, international credit rating agency Fitch said.
A narrowing CAD largely due to slacker credit growth and savings on oil imports had helped slow growth in Turkey’s external debt and that of the country’s banks in 2014, the rating agency said. ”
But the smaller increase in banks’ external liabilities, which rose by $17 billion in 2014 compared to $34 billion in 2013, was partly also the result of a strong dollar, which resulted in a negative revaluation of banks’ euro and lira debt.”
A shift towards longer-term debt maturities in new borrowing was positive for Turkish banks’ risk profiles, but short-term facilities still comprise most of their outstanding foreign liabilities, it said. “Furthermore, the overall foreign-currency liquidity positions of Turkey’s banks remained largely unchanged in 2014, with no significant build-up in foreign-currency liquid assets.”
‘Turkish firms most vulnerable to forex volatility’
Fitch separately warned in a statement released Tuesday that Turkey would be most vulnerable to a foreign exchange downturn among countries in the Europe, Middle East and Africa (EMEA) region.
“Turkish corporates would be most at risk in an FX stress scenario because of their relatively high FX borrowing and lack of hedging, but overall we believe widespread financial distress in emerging markets remains unlikely thanks to an improvement in credit fundamentals over the last decade,” Fitch said. It added that while improvements in the eurozone will trickle throughout the region, macro risks remain a substantial concern.
“Overall, we expect higher funds from operations to lead to slight de-leveraging across EMEA corporates and help strengthen interest and fixed-charge cover in conjunction with falling debt funding costs,” Fitch said.
