Moody’s has downgraded the ratings of 20 Turkish financial institutions, lowering its ‘standalone baseline credit assessments’ of 14 banks by one notch, other four banks by two notches as well as downgrading ‘corporate family ratings’ of two finance companies by a notch.
The ratings follow Moody's recent decision to downgrade Turkey's government bond rating to Ba3 from Ba2, with a negative outlook as well as lowering the ceiling for foreign currency deposits to B1.
In a statement, Moody’s said that the Turkish lenders are highly reliant on foreign currency funding and had market funds of around $186 billion denominated in foreign currency as of June 2018, which is equivalent to 75 per cent of their total wholesale funds.
This makes the banking system sensitive to potential shifts in investor sentiment, as these foreign currency liabilities must be refinanced on an ongoing basis.
Moody’s noted that in the next 12 months around $77 billion of foreign currency wholesale bonds and syndicated loans, an equivalency of 41 per cent of the total market funding needs to be refinanced.
Turkish lenders hold around $48 billion of liquid assets in foreign currency and have $57 billion compulsory reserves with the Central Bank of Turkey (CBRT), hence the latter would not be entirely available.
The rating agency expects Turkish operating environment’s deterioration to continue beyond its previous expectations.
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