Credit rating agency S&P Global stated that globally tightening financing conditions are putting pressure on banking sectors in developing countries, and that banks in Turkey and Tunisia face the most risk.
In the baseline scenario in the S&P report, it was predicted that there would be a slight decrease in the rollover ratios as long as the Turkish banks maintain the expectation that access to external financing will continue and the government can manage the balance of payments risks.
The report noted that Turkish banks have FX liquidity to support lower conversion rates, but the fact that the vast majority of FX assets are held at the central bank or invested in treasury bonds may limit access to these assets in a high-stress scenario.
“We assess that Turkish banks are vulnerable to the negative perception in the markets, increased risk appetite, falling global liquidity and high financing costs,” the S&P note said.
The rate of dollar-denominated deposits in Turkey decreased from 64.6% at the end of 2021 to 42.5% in February with the introduction of the Currency Protected Deposit (KKM) system.
S&P also predicted that the NPL ratio in Turkish banks will increase from 2.2% at the end of 2022 and will be around 4-5% by the end of 2023.