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Pre-impairment operating profit (PIP) is the key differentiator, and loss- absorption capacity varies materially across the eight D-SIBs, the rating company said.
Fitch said it put the eight largest Turkish banks' capital ratios through six separate stress tests over a projected two-year period, from end-1H19, for a sharp rise in non-performing loans (NPLs), weaker profitability and lira depreciation.
The latest official data showed that NPLs to total cash loans was 4.64% in August, against 2.85% a year ago.
The combined net profit of Turkey’s banking industry was Turkish lira (TRY) 32.8bn ($5.65bn) in January-August.
That compares to the full-year 2018 net profit of TRY53.5bn, up 10% y/y.
“In our view, these factors constitute the key risks to the banks' solvency. PIP provides the first line of defence against asset quality weakness and a buffer to absorb increased impairment charges without hitting capital,” Fitch said.
“Its level varies across the banks: PIP is generally weaker for the state banks—average: 2.8% of gross loans—than for the private banks—5.6%.”
“We find that material asset quality deterioration would impact state banks' (Halk, Ziraat, Vakifbank) PIP more than those of private banks (Garanti, Akbank, YKB, Isbank and QNB Finansbank). Our analysis shows that loss- absorption capacity is solid at Akbank and Garanti, moderate at YKB, QNB Finansbank and Isbank and generally more modest at Ziraat and Vakifbank. Halk's stressed metrics are the weakest and fall below minimum requirements in all stress scenarios.”
According to Fitch, the Turkish D-SIBs may seek to raise new capital either from the market or from shareholders to mitigate solvency risks in the event of significant asset quality deterioration.
“Capital injections could come from the Turkish authorities, or state-related entities, for the three state banks, foreign shareholders for the three foreign owned banks, and domestic shareholders for Akbank and Isbank.”
2.5 BLOG: Erdogan wants 5% growth out of his cheap money mount but is he flogging a dead horse?
Debt and power junkie Recep Tayyip Erdogan remains up in the saddle, steadying his mount for the ride of its life as he tries to bring back the credit- fuelled boom years that Turkey has enjoyed for so much of his 17-year rule. But this time around, will he find himself flogging a dead horse?
President Erdogan, who faces some new political challengers determined to unseat him in the wake of Turkey’s 2018 currency crisis and consequent first recession in a decade, needs a V-shaped economic recovery across 2020, and he’s aiming high—the strongman has determined that Turkey can grow by as much as 5% next year.
Some might say he’s made his way to the starting gates in good shape, having in July fired a central bank governor who was proving rather sluggish in getting around to some monetary easing and replaced him with a fella who’s knocked 750 bp off interest rates in just two months. Private banks, you might think, should be gearing up for some serious lending but—as pointed out by Ugras Ulku, an economist at the Washington-based International Institute of Finance (IIF) in the Financial Times on September 23—there’s a serious difficultly in
18 TURKEY Country Report October 2019 www.intellinews.com