Turkish banks’ refinancing pressures reduced: Fitch

Refinancing pressures have reduced for Turkish banks, following the post-election policy shift that includes progress towards a more conventional policy mix, and normalization of monetary policy, as evidenced by banks' recent market access, Fitch has said in a recent report.

Under a new - but experienced - Finance Minister and Central Bank Governor, Türkiye has re-introduced interest rates as the main monetary policy tool and seeks to improve policy consistency by containing the increased budget deficit and slowing domestic demand by changing the composition and pace of credit growth, the report noted.

Since June, the central bank has increased the policy rate to 35 percent from 8.5 percent, while also simplifying the macroprudential framework, the rating company said, adding that the return to a more conventional policy mix which reduces near-term macro-financial stability risks led to a revision of Türkiye's outlook to stable from negative in September.

Following the recent policy adjustments, there have been a number of further Eurobond issuances, as banks have taken advantage of the reduced risk premium, the report said.

"Recent Eurobond issuance by Turkish banks has proved renewed market access, although the cost remains high."

Banks' total external debt increased slightly to $126 billion in the first half of 2023, and short-term external debt remained high at $90 billion at the end of the first half, rising to $92 billion at end-August, according to the report.

Total sector foreign currency (FC) liquidity at $71 billion at the end of the first half has declined, but remains sufficient to cover banks' short-term FC debt-servicing requirements and a moderate outflow of FC deposits, it said.