Fitch Revisions Outlook for Turkish Banking Sector to "Neutral"

Fitch Ratings, the international credit rating agency, has revised its outlook for the Turkish banking sector from "improving" in mid-2024 to "stable" for 2025.

In its "Turkish Banks Outlook" report, Fitch noted that the determined outlook still balances the short-term pressures on asset quality arising from high inflation and Turkish lira interest rates, slowing economic growth, and regulatory intervention with improving operating conditions following recent policy changes.

The statement indicated, "Considering the short-term nature of TL deposits, we expect banks’ net interest margins to improve with a decrease in TL interest rates in 2025. Additionally, we forecast a moderate increase in non-performing loan ratios and impairment charges driven by unsecured retail lending, as well as issues stemming from the slowing GDP growth and persistently high inflation and interest rates."

Fitch signaled that it expects banks to continue entering external markets in 2025, although this will be done more opportunistically following strong external market issuances in 2024.

Fitch concluded, "Both profitability and asset quality remain sensitive to the macroeconomic environment, including regulatory changes, potential depreciation of the Turkish lira, and exposure to higher-risk segments and sectors. Our base scenario continues to be the continuation of the current economic program; however, a policy reversal could rekindle inflationary pressures and risks to macroeconomic and financial stability."