Turkish Banks Vulnerable To Shifts İn Perception Of Riskiness

Turkish banks reliant on external debt and funding generally being short term are vulnerable to shifts in global liquidity and perceptions of riskiness, according to international ratings agency Standard & Poor's (S&P).

The main risks for Turkish banks in 2016 emanate from funding and asset quality vulnerability, said Standard & Poor's Ratings Services' view, released in a report entitled "External Risks Could Expose Vulnerabilities in Turkish Banks' Funding and Asset Quality".

"Although these two factors do not pose an immediate threat, real problems could materialize if economic stress and erosion in confidence are brought about by policy uncertainty and the external environment" said the S&P statement.

The ratings agency stressed that although asset quality has so far remained relatively "unscathed" by lira depreciation, "it is vulnerable to a possible dip in economic growth and geopolitical events".

Turkish banks' financial profiles and performance will remain closely correlated with the domestic economic and policy environment, which we view as having deteriorated in recent years, according to the evaluation.

In the report, S&P's outlook on most rated Turkish banks was "negative", "in parallel with the company's outlook on the sovereign", as well as its "concerns about asset quality and funding".

"The risk we see that Turkish banks' asset quality could deteriorate markedly in the next 12 months and reliance on foreign wholesale funding could continue to increase" S&P noted. - Istanbul