Warning from Fitch for Turkish banks

International credit rating agency Fitch Ratings, in its report on Turkish banks, pointed out that banks are under margin pressure. The agency's report included the assessment that "There is a moderate deterioration in asset quality."

Fitch Ratings' quarterly Turkish Banks Data Watch Report stated that the operating environment for Turkish banks continued to improve in the first quarter of 2024, reflecting decreasing macroeconomic and financial stability risks and increasing investor confidence.

MARGIN PRESSURE WARNING

However, it was emphasized that monetary tightening, credit growth limitations, and high TL funding costs, along with weaker repayment performance by individual borrowers, are causing profitability pressures. Fitch projected that banks' provisioning and profitability buffers would remain sufficient to withstand the impact of monetary tightening.

According to the report in Ekonomim, Fitch stated that for Turkish banks, the operating profit/average risk-weighted assets (RWA) ratio averaged 3.4 percent in the first quarter of 2024 (fourth quarter of 2023: 4.6 percent), and the report included the statement, "This reflects margin pressure due to increased swap costs in a high-interest environment and slower repricing of assets due to regulatory credit growth limitations."

PROVISIONS ROSE TO 41 PERCENT

Fitch noted that loan impairment charges rose to an average of 41 percent of pre-impairment profit, up from 31 percent in the fourth quarter of 2023, mainly reflecting the deterioration in asset quality in the unsecured retail segment.

While Fitch stated that the core capital ratio of the banks under coverage fell to 12.8 percent in the first quarter of 2024 (fourth quarter of 2023: 14.7 percent), it was emphasized that tightened tolerances, increasing operational RWAs, and dividend payments by some banks were effective in this decline.

News Source: 12punto