Fitch Ratings Revises Outlook for Turkish Banking Sector

According to Fitch Ratings' "Turkish Banks Outlook" report, the expectations for the Turkish banking sector for 2025 have been revised from "improving," as characterized in mid-2024, to a "neutral" level. This assessment indicates that short-term pressures on asset quality, stemming from high inflation and Turkish lira interest rates, slowing economic growth, and regulatory interventions, continue despite improvements in operational conditions.

The report reflects that the neutral outlook for the sector evaluates the effects of changes in market dynamics and policy shifts. Fitch suggests that the impacts of these factors affecting the Turkish banking sector are balanced in their overall performance.

Interest rates are expected to decrease in 2025. Fitch forecasts that Turkish lira interest rates will decline in 2025. This decrease is expected to improve banks' net interest margins, while short-term TL deposits are noted to support this improvement. However, it is anticipated that the continuation of high inflation and interest rates could lead to a moderate increase in the non-performing loan ratio stemming from personal loans, SME, and commercial loans.

Fitch also predicts an increase in credit impairment expenses, indicating that this will affect banks' profitability. Nevertheless, it is emphasized that banks' ability to adapt to economic growth and the dynamics of financial markets is critically important.

The report states that Turkish banks will continue to source from external markets in 2025, albeit adopting a more opportunity-focused approach following strong external market exports in 2024. This indicates that banks are prioritizing diversity and flexibility in their financing strategies.

This forecast from Fitch Ratings reveals that Turkish banks are taking a proactive stance toward global economic conditions and external resource movements. This approach demonstrates that banks are acting in line with their sustainable growth objectives.