Fitch: "Regulations and high interest rates have weakened the performance of Turkish banks"

The economic crisis brought about by high inflation in Turkey is being followed with concern in global markets. The lack of confidence in the Turkish economy among foreign investors is lowering Turkey's credit rating.

International credit rating agency Fitch Ratings has conducted its credit assessment of Turkey.

The report stated that regulations, high interest rates, and tight monetary policy squeezed the margins (the share set aside against the possibility of loss) of Turkish banks in the second quarter of 2024.

The report noted that "performance has weakened despite improving operating environment conditions."

Stating that they monitor 13 banks, Fitch continued as follows:

"The operating profit/average risk-weighted assets ratio of the banks under coverage fell to 2.9 percent in the second quarter of 2024 due to margin pressure, as well as inflation-driven pressure on operating expenses, weak business volumes, and high interest rates.

While net fees and commissions grew more slowly, reflecting lower volumes, trading losses stemming from swap costs and declining customer transactions eroded a high portion of the total revenues of the banks under coverage, at 18 percent."

Fitch Ratings had upgraded Turkey's credit rating by one notch each in March and September.

The agency announced last month that it expects the dollar to reach 36 lira by the end of the year and found the 2024 profitability outlook for Turkish banks to be weak.

Fitch, which upgraded Turkey's credit rating from 'B' to 'B+' and its outlook from 'stable' to 'positive' on March 8, 2024, raised the credit rating from 'B+' to 'BB-' on September 7 and changed the outlook back to 'stable'.