The operating environment for Turkish banks has improved in recent months, due to more orthodox macroeconomic policies driving a reduction in macroeconomic and financial stability risks and increased investor confidence, Fitch Ratings said in a report Wednesday.
The Central Bank of the Republic of Turkiye (CBRT) has strengthened its foreign-exchange reserves position, dollarisation has reduced, and banks’ access to external financing has improved, the agency said.
Banks have significantly reduced their foreign exchange swaps with the CBRT, which had been a significant portion of their foreign-currency liquidity assets, bolstering financial stability, it added.
Moreover, it indicated that the surge in Turkish bank external debt issuance, totaling $6.5 billion (TL 215.38 billion) so far this year, underscores renewed international investor confidence.
In addition, the CBRT continues to unwind the macroprudential regulations, including abolishing the securities maintenance requirement and reducing roll-over requirements for FX-protected lira deposits, Fitch said.
The Turkish central bank cumulatively raised the interest rates by 4,150 basis points since June last year in a bid to rein in inflation, while authorities have introduced several other steps such as rolling back the FX-protected scheme to boost conversion to lira accounts.
Profitability pressures also persist due to regulatory loan growth caps and higher lira funding costs, Fitch also said, although "we expect it to remain reasonable, and for banking sector capitalization and liquidity buffers to be adequate."
"Banks’ provisioning and profitability buffers should be sufficient to withstand the impact of monetary tightening on asset quality under our base case," it added.
The central bank said recently it was not considering the cuts at the moment, while some analysts pen the last quarter as a possible period of the easing of the current policy.
The net profits of Turkish banks jumped 24% year-over-year in the first six months of 2024, according to banking watchdog data released earlier this week.
The sector posted a TL 314 billion net profit in January-June, up from TL 252.5 billion in the prior year, Banking Regulation and Supervision Agency (BDDK) data showed.