Fitch issues warning about Turkey about funding costs pressuring margins at banks

During its latest meeting, the Central Bank of the Republic of Turkey (CBRT) kept its policy rate unchanged at 50 percent, while Fitch warned about funding costs pressuring margins at banks.

According to Fitch Ratings’ three-month Turkish Bank Datawatch report, a general decrease in profitability of Turkish banks is expected in 2024. The report highlighted margin pressure, increasing deposit and swap costs, decreasing gains indexed to the Consumer Price Index (CPI), the cost of credit rating downgrades, and inflationary pressures on operational expenses as reasons for the decline in profitability.

Fitch expects a moderate weakening in asset quality in 2024.

FITCH HAD WARNED ABOUT FISCAL EXPANSION

Earlier this week, during a panel discussion on Turkey, Fitch had issued a warning about fiscal expansion. Erich Arispe Morales, Senior Director and Turkey Analyst at the international credit rating agency Fitch Ratings, stated that Turkey’s fiscal stance is clearly expansionary. Morales mentioned during the online panel on Turkey organized by the institution that adjusting fiscal policy to support tightening monetary policy is necessary. He also noted that vulnerabilities in the Turkish economy have decreased and the current account deficit continues to narrow. Morales pointed out that the decline in energy and gold imports in Turkey is reflected in the current account deficit, and he mentioned that international reserves have returned to levels seen at the beginning of March.