Fitch downgrades outlook for Turkish banks due to lira depreciation

Fitch international rating agency has downgraded the forecast for Turkish banks for 2022 due to high inflation and a weak exchange rate of the national currency, Report informs.

“The challenging Turkish operating environment, deterioration in domestic confidence and further potential weakness in the Turkish lira amid monetary policy uncertainty and high inflation create risks to macroeconomic and financial stability,” reads the report.

This is negative for banks' credit profiles, could increase the likelihood of government intervention in the banking system and drives our 'deteriorating' outlook for the sector in 2022.

Turkish banks are almost all rated in the ‘B’ category, mostly ‘B+’. The low ratings reflect risks to standalone credit profiles in the volatile Turkish operating environment.

In early December, Fitch also downgraded outlook on Turkey's long-term foreign currency issuer default rating (IDR) at 'BB-'.

Inflation in Turkey stood at 21.31% year-on-year in November amid a collapse in the national currency following a cycle of central bank interest rate cuts. In January, the US dollar was trading at 7.4 lira, while the historical maximum reached in December was 18.4 lira per US dollar.