Ratings

Turkish Bank Interest Cash Flow Shows Asset Quality Under Pressure - Fitch Ratings

The Turkish banking sector continues to face pressure on asset quality, with interest receipts in 4Q2019 falling around 10% below the interest accrued, according to a recent note from Fitch Ratings.

Jan 7, 2020 // 11:00AM

Since the 2018 crisis, which saw the lira tumble amid geopolitical volatility and a strengthening dollar, Turkey has been undergoing a steady recovery.

But there remain a number of structural weaknesses in the Turkish banking sector – a lynchpin of the Turkish economy. Non-performing loans (NPLs) continue to plague the sector, and look set to continue rising over the year ahead.

“The ratio declined to about 84% for 2018 and 83% for 3M19 from about 93% for 2017, while the problematic loans ratio more than doubled amid pressure on borrowers from economic and exchange-rate volatility. Most of the decline in the interest ratio was due to missed or delayed payments of interest on loans, with loan interest receipts falling 7% short of accrued loan interest in 9M19.”

Source: Fitch Ratings

“However, a significant part of the decline in the interest ratio was due to banks' inflation-linked securities holdings. Rising inflation increased the interest accrued on these in advance of the interest cash flow, which is paid at maturity. In 9M19, securities interest receipts were 28% lower than accrued securities interest income.”

NPLs climbed from 3.8% at end-2018 to 5.2% to gross loans at mid-November 2019. Looking forward, Fitch predicts that this will continue to rise to 7-8% by the year-end, unless there are significant market events. Fitch expects NPLs will continue to hinder the sector’s performance regardless of the fact that interest receipts are have improved over the past year.

Ratings Bips & Pieces Economics and Markets

Companies mentioned in this article

Bonds & Loans is a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets.

Recommended Stories