Standard & Poor's (S&P) Ratings Services has raised its long- and short-term counterparty credit ratings on Turkey-based T.C. Ziraat Bankasi and Turkiye Is Bankasi to B/B from B-/C and the outlook is stable.
At the same time, S&P revised its outlook on Dogus Holding, Turkiye Garanti Bankasi and Garanti Finansal Kiralama to stable from negative. In addition, the ratings on these institutions were affirmed. The rating agency also raised its public information ratings on Akbank, Yapi ve Kredi Bankasi and Turkiye Vakiflar Bankasi to Bpi from B-pi, and its CCCpi rating on Turkiye Halk Bankasi to Bpi.
The various rating actions follow S&P's upgrade to B/B from B-/C of its ratings on the Republic of Turkey. "The soundness of the Turkish banking sector is improving as a result of its restructuring," said S&P's credit analyst Emmanuel Volland. Turkish banks are also benefiting from the improving macroeconomic situation in Turkey, as evidenced by the strong economic growth and a lower interest rate environment. "They now have a chance to improve, unless they are hit by further systemic shocks," added Volland.
Banks have reduced their vulnerability to exchange rate risk by keeping open foreign currency positions to very low levels. Notwithstanding significant progresses, banks still face the challenge of improving their poor asset quality and weak capitalization, and diversifying revenues. The profitability of the banks is still highly dependent on holding government instruments rather than the usual bank lending to the private sector.
The banking system has a number of items pending on the reform agenda, including the long-awaited privatization of the state-owned banks. The outlook on the banks balances the improving economic prospects with their weak financial profiles. The government has gained some market confidence and interest rates have declined, in line with economic improvements.
"If this trend continues, the banks will benefit from the lower cost of funds and an increase in lending opportunities. Conversely, if real interest rates do not start declining in the near future, then the IMF-supported program will be in jeopardy with the attendant risks of another financial crisis," said Volland. In this case, the ratings on the banks will come under downward pressures. Apart from the economic environment, profitability and capitalization will drive the credit quality of Turkish banks in 2003 and beyond. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
