Caspian Energy Journal Caspian European Club
Monday, 19 November 2018 11:00

Turkish banks' asset quality declining, Fitch

Turkish banks' asset quality declining, Fitch

Turkish banks' 3Q18 results confirm that asset quality is gradually deteriorating as a result of the economic slowdown, lira depreciation and interest rate rises, Caspian Energy News ( reports with reference to Fitch Ratings.

Impaired loans as a percentage of gross loans edged up in 3Q18 and the trend is continuing in 4Q18. Loans that have been impaired (Stage 3 loans) under local GAAP increased to 3.2% of gross loans from 3.0% at end-2Q18 for the banking sector. The pattern varies among banks but no bank has a particularly high ratio yet, among the seven largest lenders.

Stage 2 loans (non-impaired, but with a “significant” increase in credit risk) show a more notable rise, increasing to 8.5% of gross loans from 7.2%. The Stage 2 ratio is a more forward-looking indicator of asset quality, and the rise signals that impairments could accelerate in 4Q18 and 2019.

Fitch believes recent rules and guidance from Turkey's Banking Regulation and Supervision Agency may delay the recognition of problem assets. For example, it is now easier under local regulations for banks to classify or reclassify restructured loans as Stage 1 (non-impaired, no significant increase in credit risk) instead of watch-list loans. The picture may gradually start to become clearer at end-2018 and through next year, with additional insight from IFRS 9 reporting, which most of Turkey's larger banks provide. IFRS 9 requires any instrument with arrears of 30 days or more to be classified as Stage 2.

Fitch downgraded most Turkish banks in July, with further widespread downgrades on 1 October.

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Person in charge of the newsline: Olga Nagiyeva 


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