Moody's calls Turkey's banking system is fragile


International rating agency Moody's has announced its outlook for Turkey's banking system. Moody's Investors Service said its outlook was negative for the second consecutive year because of the subdued economic growth and currency volatility, which would reduce growth opportunities for banks and impair borrowers' ability to service their loans. Moody's also said that besides moderate asset-quality erosion, the Turkish banking system's reliance on capital market funding causes it to become exposed to international investor confidence and potential spikes in funding costs in light of the upward pressure on dollar benchmark rates. "We expect problem loans to rise, albeit from low levels, with loans to consumers and SMEs bearing the brunt," noted Irakli Pipia, Moody's vice president, senior analyst and author of the report. "Corporate loans, which have so far proved resilient to the economic slowdown, are still vulnerable to exchange-rate volatility because this segment has a high level of foreign-currency lending. We estimate that loans to companies with no underlying foreign exchange cash-flow represent about 10 percent to 12 percent of total corporate and SME loans." On the other hand, Economy Minister Nihat Zeybekci said that Moody's evaluation about the banking system is very unhealthy. Zeybekci stressed that profitability of Turkish banks is at good levels. "Turkey has to grow and we have everything to enable growth. Growing less than 3 percent makes us unsuccessful," Zeybekci emphasized.