Fitch Ratings said on Thursday that modest economic growth, competition for deposits and moderate asset quality deterioration will increase pressure on the country's banks in 2015.
However, solid capital and profitability buffers mean the outlook remains stable, the rating agency said. Turkish banks' increased dependence on short-term, foreign-currency funding poses the biggest risk to the outlook, it added.
The country's economic growth over the medium term is expected to remain below recent highs, with ongoing but manageable interest- and exchange-rate volatility and continued access to international funding, Fitch said.
The agency also expects asset quality to deteriorate due to seasoning of loan portfolios, increased consumer indebtedness and the depreciation of the lira, which may weaken the debt servicing capacity of foreign-currency borrowers.
Fitch expects high interest rates and competition for deposits to push up funding costs, but sees margin pressure to be only moderate as Turkish banks have successfully re-priced loans in the past.
The agency noted that banks' foreign debt has almost trebled since the end of 2008 and has become more short term. This has significantly increased the potential impact of an abrupt change in investor sentiment that cut the banks' market access, Fitch ratings said.
That said, the agency believes that under most scenarios foreign-currency liquidity would be sufficient.
The material has been provided by InstaForex Company – www.instaforex.com