Fitch Ratings’ 4Q21 Turkish Banks Datawatch report covers 13 banks that comprise 81% of total Turkish banking sector assets. It assesses key data from the bank’s unconsolidated financial statements and regulatory disclosures, sourced primarily from the Banking Regulation and Supervision Agency.
Turkish banks’ profitability metrics improved in 4Q21 following improved margins. The banks benefitted from lower funding costs in the lower lira interest rate environment and gains on CPI linkers amid rising inflation.
However, rate cuts have also brought market volatility. Loan impairment charges increased rapidly across the sector in 4Q21 due to lira depreciation and as banks provisioned against increasing operating environment risks.
Reported total capital ratios increased in 4Q21 despite significant lira depreciation. This reflected regulatory forbearance, namely the fixing of the exchange rate at the 252 working day average as of end-2021 in regulatory capital calculations, while the banks’ combined equity/assets ratios fell by 150bp.
FC deposits rose further in 4Q21, to a high 63% of total deposits, reflecting weakened confidence in the lira and negative real deposit rates amid inflationary pressures.
Sector FC deposits have decreased (end-February 2022: 58%) since the foreign exchange-protected lira deposit mechanism was announced, partly boosted by temporary tax incentives for corporates, but remain high. Sector FC wholesale funding fell in 4Q21, reflecting reductions at a small number of banks.
Banks’ impaired loans ratios improved in 4Q21 (down 40bp qoq), reflecting nominal loan growth, NPL sales and write-offs but also good collections performance, although the average NPL origination ratio rose, indicative of asset quality pressures. Risks remain high due to exposure to the volatile Turkish operating environment, risky segments and sectors, seasoning risks, and FC lending (end-4Q21: 43% of sector loans) stemming from lira weakness.
The report, ‘Turkish Banks Datawatch: 4Q21’, is available at www.fitchratings.com.
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