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Fitch: Turkish banking sector risks increase after failed coup

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Fitch: Turkish banking sector risks increase after failed coup

Fitch Ratings said the recent in Turkey and resultantpolitical polarization have increased risks for the credit profiles and ratingsof the country's banks.

The agency said Turkish lenders' credit profiles are sensitiveto country risks, access to foreign credit markets and the lira exchange rate,although it added that the investment-grade ratings on most major lendersreflect the agency's view that they are "fundamentally sound." Itadded that there has been little sign of deposit instability in the wake of thecoup, noting that the central bank has pledged to take necessary liquidity measures to supportfinancial stability.

Observing that Turkish banks' sensitivity to foreign marketaccess stems from their high levels of short-term external debt, Fitch said itviews foreign-currency liquidity at Fitch-rated banks as adequate andsufficient to cover short-term foreign-currency liabilities due within one year.It warned, though, that weakening in creditor sentiment could add pressure.

Roughly a third of total Turkish sector lending is foreigncurrency-denominated, and Fitch said the decline in the lira after the coup —and the longer-run depreciation of the currency in recent years — will likelylead to some losses on these exposures. However, the agency expects these to bemanageable in terms of volume and to be recognized over time.

The sovereignrating is also a key sensitivity for most Turkish bank ratings,Fitch added.