Page 18 - TURKRptSep20

less likely in the near term and remained doubtful that there was a compelling motivation, despite reported strains within the coalition and the potential for a steady erosion of support to opposition parties.
Fitch expected US sanctions to be advanced against Turkey, and “it remains unclear the extent to which they will be broadened from implementation of CAATSA [Countering America’s Adversaries Through Sanctions Act] measures”.
‘Risk of Syria escalation’​. In Syria, the ceasefire Turkey agreed with Russia on military operations in Idlib region was unlikely to hold in Fitch’s view, and “there is a risk of an escalation, heightened tensions with Russia, and adverse spill-overs, compounded by the likely further displacement of Syrians”.
Military operations in Libya have stepped up since Fitch’s last review in February, adding to risks to relations with Russia.
Fitch continued to view the US court case against Turkish state lender Halkbank for Iran sanctions evasion as of lower impact but still with the potential to damage investor sentiment.
The government's direct fiscal response to the coronavirus shock was “moderate”. The central government deficit widened to 5.2% of GDP (annualised) in January-July. Fitch forecasts the general government deficit will move up to 6.5% of GDP in 2020 from 3.3% in 2019. “There is particular uncertainty around the forecast partly given the lack of clarity over the unwinding of fiscal measures,” it said.
Fitch forecast that general government debt would increase from 33% of GDP at end-2019 to 40% at end-2020, 7pp higher than forecast in its last review in February.
“There has been an increase in contingent liability risks, mainly from the banking sector,” Fitch said. Other direct government guarantees currently total close to 5% of GDP, in addition to which the ratings agency estimated contingent liabilities from public-private partnerships of a similar magnitude.
“Turkish banks' credit profiles remain under pressure from exposure to macro and lira volatility. Regulatory forbearance is providing an uplift to asset quality and capital metrics,... and refinancing risks also increase with a weakening of investor sentiment,” Fitch said.
Fitch said it expected a marked weakening in underlying asset quality, given the recessionary environment, exposure to vulnerable sectors such as tourism, and the recent rapid growth in lending particularly unsecured retail.
Risks to capitalisation were significant given pressures on asset quality and the currency, according to the ratings agency.
18​ TURKEY Country Report​ September 2020 ​ ​www.intellinews.com