Fitch: Turkish Banks Still Vulnerable To Investor Sentiment

- Banks' role 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, Fitch said on Thursday.

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 billon dollars in 2014 compared to 34 billion dollars in 2013, was partly also the result of a strong dollar, which resulted in 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."

"Our base case expectation, based on an established track record of high rollover rates, is that Turkish banks will retain good access to foreign credit markets" Fitch said, adding that it also believed Turkish banks' foreign-currency liquidity should be sufficient to deal with a short-lived market closure. "But the banks' vulnerability to a more prolonged lack of access remains significant" it added.