Moody's: Turkish banks' capitalization can absorb loan losses

The U.S.-based credit rating agency Moody's announced yesterday that the outlook of the Turkish banking system is negative due to the rise in funding costs and the slowing economy.

On the other hand, according to the statement, the credit rating agency expects that the non-performing credit rate in the Turkish banking sector will increase between 40 and 60 basis points, which can be absorbed with strong capitalization. It said: Although commercial loans have so far proved their resistance to the economic slowdown, they are still vulnerable to the combination of the loss of value in currencies and borrowing costs. Turkish banks have strong capital buffers that can absorb loan losses.

Moody's statement revealed that it maintains the negative outlook for the Turkish banking system because of the sensitivity to volatility and liabilities due to the rising dollar in developing countries.

Moody's stated that the banking sector is sensitive to changes in perception from investors, adding that Turkish banks might face downward pressure on profitability due to the shrinking net interest margins.

Moody's Vice President and Senior Credit Analyst Irakli Pipia said that the Turkish banking system is well capitalized, as economic expectations have gained weight on credit performance and profitability. He added that he expects the ratio of non-performing loans will rise between 3.5 percent and 3.8 percent, due to the slowing economy and the depreciation of the Turkish lira.