According to a recent Standard & Poor (S&P)'s report, the Turkish banking sector has a very high-risk profile, which is the product of the country's fragile economic and financial environment.
Most of the factors behind the ratings on the Republic of Turkey, which are B-, stable and C, constitute major risks for the banks. "The government's huge budget deficit and interest rate burden mean that banks, which finance the majority of domestic government debt, are at the mercy of the state's monetary policies and are also vulnerable to the latter's potential payment problems," said S&P's credit analyst Emmanuel Volland.
"In addition, banks face the challenge of improving their poor asset quality and capitalization, diversifying revenues, and reducing the high-risk practice of intragroup lending," added Volland.
While the surviving banks still have a chance to improve, any further systemic shocks could have dire consequences on the sector. Apart from the economic environment, profitability and capitalization will drive the credit quality of Turkish banks in 2003 and beyond. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
