Moody’s Investors Service on Sept. 15 downgraded 13 Turkish banks, days after Turkey had its debt rating cut deeper into junk by the company.
Moody’s downgraded the foreign currency long-term deposit ratings of 12 banks, the long-term counterparty risk ratings (CRR) and the long-term counterparty risk assessments (CRA) of six banks, and the long-term senior unsecured rating of one bank by one notch and the long-term foreign currency CRR of three banks by two notches.
The standalone baseline credit assessments (BCAs) and other ratings of these banks and of the other four Turkish banks rated by Moody’s are unaffected by this rating action.
The downgrades on the 13 impacted banks are driven by Moody’s downgrade on Sept. 11 of the Turkish government’s bond rating to B2 with negative outlook from B1 with negative outlook.
The downgrade of Turkey’s sovereign rating resulted in the lowering of the ceilings for foreign currency deposits to Caa1 from B3 and for foreign currency bonds to B2 from B1.
The outlooks on the long-term deposit and debt ratings of all the Turkish banks rated by Moody’s remain negative, in line with the negative outlook on the sovereign rating. The negative outlooks reflect the downside risks associated with a balance of payments crisis, which could lead to capital controls and restrictions on foreign currency outflows.
The long-term foreign currency deposit ratings of 12 Turkish banks, Akbank T.A.S. (Akbank), Alternatifbank A.S. (Alternatifbank), Denizbank A.S., HSBC Bank A.S. (Turkey), QNB Finansbank A.S. (QNB Finansbank),T.C. Ziraat Bankası A.S. (Ziraat), Türk Ekonomi Bankası A.S. (TEB), Türkiye Garanti Bankası A.S. (Garanti BBVA), Türkiye Halk Bankası A.S. (Halk Bank), Türkiye İş Bankası A.S. (Isbank), Türkiye Vakıflar Bankası T.A.O. (Vakifbank) and Yapı ve Kredi Bankası A.S. (Yapi Kredi), are constrained at Caa1.
Moody’s has maintained its assumptions of government support unchanged for Turkish banks.
The long-term deposit and issuer ratings — where applicable — of eight banks benefit from uplift from government support, reflecting Moody’s assumptions of very high or high probability of government support. These banks are Akbank, Export Credit Bank of Turkey A.S. (Turk Eximbank), Garanti BBVA, Halk Bank, İşbank, Vakıfbank, Yapı Kredi, Ziraat.
The long-term CRR and CRA of Akbank, Garanti BBVA, Turk Eximbank, Vakıfbank, Yapı Kredi and Ziraat now benefit from a one to two-notch uplift of government support, from two to three previously. This reflects an unchanged probability of government support and a narrower gap between the banks’ BCA and Turkey’s sovereign debt rating.
For the other banks, the rating agency continues to maintain a low probability of government support, which does not provide any rating uplift.
The long-term foreign currency CRR of Alternatifbank, QNB Finansbank and TEB and the senior unsecured rating of QNB Finansbank were downgraded and are constrained at B2.
The BCAs and other ratings and assessments of Turkish banks are unaffected by this rating action because of the unchanged Macro Profile and Moody’s affiliate support assumptions.
Moody’s has maintained the Very Weak + Macro Profile it assigns to Turkish banks, reflecting the rating agency’s unchanged view on the operating environment for banks.
Despite a challenging economic environment and funding market conditions for Turkish banks, Moody’s notes that Turkish banks’ reliance on short term wholesale foreign funding has reduced moderately (USD44 billion at end-June 2020, from USD64 billion available at end-April 2019) while foreign currency liquidity has been maintained at broadly similar levels (USD90 billion at end-June 2020).
Moody’s also noted that Turkish banks have continued to maintain access to the syndicated loans market throughout the coronavirus pandemic.
All long-term deposit, senior and issuer ratings have a negative outlook, in line with the negative outlook on the sovereign rating. The outlook reflects the downside risks associated with the authorities’ inadequate reaction function, which makes Turkey more likely to suffer a balance of payments crisis, which might lead to capital controls and restrictions on foreign currency outflows.
An upgrade is unlikely, given the current negative outlook, Moody’s said. The outlook could be changed to stable following a stabilisation of Turkey’s sovereign outlook, an improvement of the operating environment, which would stabilise the banks’ stock of problem loans and profitability, and a further structural reduction of the banks’ reliance on foreign currency funding.
A downgrade could be driven by a downgrade of the sovereign rating, deterioration in Turkey’s operating environment, a higher-than-expected deterioration of asset quality and profitability, or a material decline in capital ratios.