Istanbul: Turkish banks are anticipated to experience enhanced profitability in the coming year as the central bank embarks on a rate cut cycle, according to Fitch Ratings' director for banks, Ahmet Kilinc. Speaking at the Fitch on Trkiye event in Istanbul, Kilinc elaborated on the factors influencing the financial outlook for Turkish banks.

According to Anadolu Agency, Fitch has adjusted its operating environment score for Turkish banks to align with the country's rating. This decision was announced during an event attended by senior analysts from various Fitch Ratings units, including sovereigns, corporates, financial institutions, and sustainable finance. Kilinc emphasized that the policy shift by the central bank was a crucial factor driving the rating revision.

Kilinc highlighted the sufficiency of capital adequacy, noting a Common Equity Tier 1 (CET1) ratio of approximately 14-14.5%. He pointed out that Turkish banks have issued bonds in foreign currency, which bolsters total capital adequacy and offers protection against potential currency risks. While an increase in non-performing loans is anticipated, reserves are considered adequate, maintaining non-performing loans at manageable levels.

Access to foreign markets was also underscored as a significant factor. Kilinc noted the issuance of bonds by many banks, indicating access to foreign markets and reduced refinancing risks. However, he remarked that foreign currency deposits remain substantial, and short-term foreign debt is still high, despite decreased risks in accessing foreign markets.

Kilinc pointed out that the central bank's rate cuts are expected to support banks' net interest margins, as high interest rates adversely affect asset quality. The declining rates could provide some relief. He mentioned the presence of around $240 billion in foreign currency deposits, emphasizing the importance of monitoring exchange rate movements and the broader macro and financial stability in light of the rate cuts.