U.S.-based credit rating agency Moody's revised the rating outlook for 17 Turkish banks to "positive" from "stable" Wednesday following a change in the country's outlook to positive last Friday and affirming its sovereign rating at "B3."
The agency thus changed the outlook of all 17 banks it assesses in Türkiye, citing "the banks have reported resilient financial performance, underpinned by improved profitability and asset quality," in recent years despite a period of low monetary policy.
Last week, the rating agency implied that the new policy pivot now improves the prospects for bringing down the country's high inflation rates to more sustainable levels.
Following the presidential and parliamentary elections last year, a new economic administration led by the Central Bank of Republic of Türkiye (CBRT) Governor Hafize Gaye Erkan orchestrated a shift toward sharp tightening, lifting the interest rates by a total of 3,400 basis points through December to rein in inflation, which neared 65% last month.
The policy shift aims to arrest inflation, reduce trade deficits, boost foreign investment, rebuild foreign exchange reserves and stabilize the Turkish lira.
"While headline inflation is likely to rise further in the near term, there are signs that inflation dynamics are starting to turn, indicative of monetary policy regaining credibility and effectiveness," Moody's said in a report last week.
Citing the "potential for improvement in the operating environment for Turkish banks," underpinned by the return to more conventional policymaking, Moody's said Turkish banks' ratings could be upgraded if the operating environment improves further and the banks maintain solid financial fundamentals or Türkiye's issuer rating of B3 is upgraded.
Late last year, S&P Global Ratings also raised the country's rating outlook to positive from stable and affirmed its sovereign rating at "B."
Amid the change in policymaking, foreign investors' interest in Turkish assets returned. U.S. giants Pimco and Vanguard recently announced they had bought local assets, betting the country would maintain high interest rates.
A former Wall Street bank executive, Erkan, who met investors at an event in New York last week, has vowed to keep monetary policy tight "as long as needed" to restore price stability.
The CBRT, in its last policy meeting, delivered a 250 basis points hike and is expected to announce its latest decision on borrowing costs during the meeting scheduled for next week.
The central bank expects inflation to begin easing in the second half of this year.
