Photographer: Ismail Ferdous/Bloomberg

Turkey’s Regulator Says Banks Can Withstand a Fitch Junk Verdict

Turkey’s banking regulator said lenders are sufficiently well capitalized to withstand a potential downgrade of the country’s sovereign rating by Fitch Ratings Ltd. next month.

“There will be a limited impact on capital-adequacy ratios but no bank will fall below 12 percent,” Mehmet Ali Akben, head of the industry watchdog known as the BDDK, said in a phone interview, referring to its minimum requirement on the metric. “We are making our calculations along with all banks and making stress tests on possible scenarios,” he said. 

A cut to junk would have an impact on banks’ capital-adequacy ratios as they use Fitch to calculate risk-weightings on their foreign-exchange reserves at the central bank, as well as on non-lira securities. While the legal threshold for capital adequacy stands at 8 percent, the regulator insists banks maintain 12 percent at least. The average core capital-adequacy ratio for the nation’s lenders stood at 14 percent at the end of October.

“It is up to the banks to raise or lower capital-adequacy ratios. If they reduce their risks, the ratio goes up,” Akben said.

Growth in Turkey’s banking industry will accelerate in the second half of next year as domestic and regional political uncertainty decreases, Akben said. Turkey is likely to hold a referendum to change its constitution in the spring, while tensions in neighboring Syria and Iraq are expected to diminish after a deal with Russia, Akben said.

“When those uncertainties are cleared, Turkey’s banking industry will accelerate,” Akben said. “This year loan growth will be around 15 percent, we will exceed that in 2017.”