Moody's Investors Service downgraded by one notch the standalone baseline credit assessments (BCAs) of 14 banks, and by two notches the BCAs of four other banks following the agency's similar action on Turkey's sovereign rating. It attributed the downgrade of the banks' BCAs mainly to the higher risks associated with further negative shifts in investor sentiment that could lead to a decline in wholesale bank funding, as well as to the steeper-than-expected deterioration in Turkey's operating environment. In this context, Moody's lowered the Turkish banks' Macro Profile by one notch from 'Weak' to 'Weak-'. Further, it indicated that the performance of all banks is constrained by weaker funding conditions, given their high reliance on US dollar short-term market funding that represented about 41%, or $77bn, of their foreign-currency market funding as at June 2018. It added that a shift in domestic investor sentiment could weigh on the banks' resident deposit base in foreign currency, which accounts for about 40% of the banking sector's total deposits. It considered that lower economic growth and a weaker local currency could have a worse-than-expected impact on the banks' asset quality and capital metrics. In parallel, Moody's downgraded by one notch the long-term foreign-currency deposit ratings of 12 banks, and by two notches the long-term foreign-currency deposit ratings of three more banks. It noted that the banks' ratings have a 'negative' outlook due to the vulnerability of the banks' foreign currency funding and deposits to a prolonged volatility of the exchange rate, or to a sudden drop in investor confidence. It added that the 'negative' outlook also reflects a considerably challenging financial environment, which would further negatively impact the banks' solvency.
Source: Moody's Investors Service