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Moody’s Reviews 10 Turkish Banks for Downgrade Amid Turmoil

Moody’s Investors Service said it’s conducting a review that may lead to rating downgrades for Turkish banks amid slowing economic growth, higher funding costs and political uncertainty.

The potential cut affects lenders including Akbank TAS (AKBNK), Turkiye Garanti Bankasi AS. (GARAN), Turkiye Halk Bankasi AS (HALKB), Turkiye Is Bankasi (ISCTR), Vakiflar Bankasi Tao (VAKBN), Asya Katilim Bankasi AS (ASYAB) and TC Ziraat Bankasi AS, Moody’s said late yesterday in a report.

“Potential downgrades are already factored in the bond yields that Turkish banks have to pay,” said Demetrios Efthanasiou, head of strategy for central and eastern Europe, Middle East and Africa at Standard Bank Plc in London. “The review by Moody’s is very relevant, if not a bit overdue.”

Standard & Poor’s cut its outlook for Turkey to negative from stable last month, citing heightened political risk and slowing growth, and later followed with similar revisions for six of the country’s banks. Lira volatility and above-target inflation will put pressure on Turkish lenders, said Moody’s, adding that increasing bank indebtedness also prompted its review.

“The banking system and its financial obligations have grown significantly in relation to GDP in recent years, and will continue to do so ahead, increasing the potential cost of any government support, if needed,” the ratings company said.

Specific Risks

Credit rose to 54 percent of gross domestic product in 2012, the last year for which GDP data is available, from 29.5 percent five years earlier, according to data compiled by Bloomberg. The rise in personal indebtedness has prompted the country’s banking regulator to take a series of measures to curb credit in the past six months.

Moody’s highlighted specific risks for some lenders, citing the volatility of Bank Asya’s deposit base in recent months.

“Looking on the bright side, the slowdown in credit growth is likely to prove very positive for the banking sector’s long-term stability,” said Standard Bank’s Efthanasiou. “Slower credit growth will allow for loan portfolios to season and non-performing loans to rise, providing valuable feedback to banking sector managers and regulators.”

To contact the reporter on this story: Isobel Finkel in Istanbul at ifinkel1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net Dylan Griffiths, Steve Bailey

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