Stating that imbalances are widening rapidly in a hyperinflationary environment caused by the increase in real estate prices and highly expansionary monetary policy, S&P pointed out that the accelerated loan growth in a highly negative interest rate environment further contributed to the increase in real estate prices.
“HARMFUL FOR THE BANKING SYSTEM”
S&P said that rising housing prices are helping banks’ asset quality by increasing the value of real estate held as collateral. .
Expressing that they believe the macroeconomic environment will continue to worsen in the coming quarters, S&P said, “We do not expect GDP growth to decline slightly below 3 percent in 2023. We expect inflation to be above 40 percent on average next year. In emerging markets, the hawk stances of central banks are expected. “The Turkish Lira will continue to slide weakly due to the impact of the Turkish lira. The Turkish authorities’ very expansionary fiscal stances and monetary policy pose the risk of further undermining confidence in the lira. The weakening lira is also eroding the credibility of Turkey’s corporate sector,” he said.
EXPECTED TO INCREASED PROBLEM LOANS
Explaining that banks expect their loan losses to be 320 basis points per year in the 2022-23 period, S&P emphasized that they anticipate that non-performing loans, which was 2.4 percent on January 31, 2022, will remain in the range of 4-5 percent in 2023.
Stating that the banking sector risk trend is negative and Turkish banks are expected to continue to have access to external funding in the basic scenario, S&P also said that they expect external debt to continue to decrease gradually over the next few years if the government can control the balance of payments risks. “However, banks continue to be very vulnerable to negative market environment and risk perceptions,” S&P said, adding that the combination of higher squared liquidity with increasing inflation and unpredictable monetary policy increases refinancing risks.