Moody’s Investor Services has improved its outlook for Türkiye’s banking sector, lifting it from negative to stable.
In parallel, it warned of challenges that still face the sector.
Meanwhile, the Turkish government said that it would announce in September short-term, and mid-term plans and programs to enhance the investment environment in the country.
In a report published on Tuesday, Moody’s pointed to a significant increase in asset and capital risks, while profitability, financing, work environment, and government support faced some challenges, but remained generally stable.
The report indicated that the Turkish government is ready to support the sector, but its ability to do so is limited, especially regarding foreign currencies. This capacity has shrunk over the past years, given the deterioration in Türkiye’s net reserves.
Moody’s expects Türkiye’s economic growth to slow down, with real GDP expanding at 4.2 percent in 2023, down from 5.6 percent growth in 2022.
It expects inflation to stay high at 51 percent in 2023, although down from 72 percent recorded in 2022.
It also noted that the export and tourism sectors will continue to support growth, despite a moderate slowdown in the first half of 2023 due to a slowdown in the country's main export markets in Europe.
Moody's warned that asset risks will continue to rise.
Non-performing loans decreased in 2022 to 2.4 percent of total loans, which is lower than 2021 levels when the ratio was 3.7 percent.
But the number of "new non-performing loans" nearly doubled in 2022 compared to the previous year, because high inflation and currency depreciation reduced borrowers' ability to repay.
The agency expected a deterioration in the quality of Turkish banks' assets in 2023, affected by slower growth and continued high inflation rates.
Moody's expected that the depreciation of the exchange rate and credit growth would keep the capital of Turkish banks under pressure.
The agency pointed out that capital levels in state-owned banks are weaker compared to private banks, but the capitalization of state-owned banks was supported by cash injections from the government.
Banks’ profitability measured by return on average assets has cooled to 3 percent in the first half of 2023, down from 3.7 percent for the same period in 2022, as pressure on the sector’s core margin continues to build. However, the overall profitability of banks is still strong.
Last week, Moody’s said Türkiye’s credit rating could be upgraded if the country continues and deepens mainstream policies introduced since the presidential elections in May.
The agency expected the Turkish economy to grow by 2.5 percent next year.
Turkish Vice President Cevdet Yilmaz announced that the government would unveil short-term and medium-term plans in September to enhance the investment environment.
He made his remarks as he chaired on Tuesday the meeting of the Coordination Council for the Improvement of Investment Environment at the Turkish presidency headquarters.
Yilmaz stressed the need for additional regulations within the framework of compliance with the Maastricht standards adopted by the EU.
He went on to say that attaining investment opportunities is a key matter.
Yilmaz further highlighted the urgency of establishing more industrial zones, stating that the industrial zones in Türkiye are much less compared to the EU countries.
The meeting also touched on environment-related regulations, green energy transformation, risk management development, and the significance of preparing for all kinds of disasters, especially in Istanbul.
“Our main framework is sustainable development. The more adequate investment climate is, this would positively reflect on the economy and Turkish people,” Yilmaz added.