ANKARA: Turkish banks are benefiting from a recent boost in Trkiye's sovereign credit rating, which has eased financial pressures and lifted investor confidence, according to a report from Fitch Ratings on Thursday. According to Anadolu Agency, refinancing risks for Turkish banks have decreased due to a shift toward more traditional economic policies, as noted in the report. This shift has been demonstrated by increased access to external markets and a rise in debt issuance. However, the report also highlights that banks still rely heavily on short-term foreign-currency funding and remain sensitive to investor sentiment. The report further mentions a decrease in foreign currency deposits, including those protected against currency fluctuations. It indicates that the unwinding of the FX-protected deposit mechanism by authorities is expected to be gradual, considering the potential risks to lira stability. While tighter monetary policy may exert moderate pressure on banks' asset quality, potentially leading t o an uptick in impaired loans, Fitch anticipates that the increase will remain manageable within the sector. Profitability in the banking sector is projected to soften in 2024. This is attributed to higher funding costs, regulatory lending limits, and a reduced contribution from inflation-linked securities income. Despite these challenges, Fitch stresses that Turkish banks are well-capitalized, with strong profits before loan losses and regulatory support for foreign currency assets. However, capital levels remain sensitive to macroeconomic volatility and potential depreciation of the lira. Fitch's upgrade of Trkiye's long-term rating to BB- from B+ with a stable outlook has resulted in upgrades for 24 Turkish banks. This reflects improved external buffers, reduced contingent foreign exchange liabilities, and the expectation of lower inflation and current account deficits.