Turkish state-owned banks weaker than private ones - Fitch

Turkey’s largest privately owned banks are in a better position compared to state-owned banks against potential market deterioration in terms of asset quality, credit ratings agency Fitch said on Thursday, citing its latest stress test.

Sharp increase in non-performing loans (NPLs), weaker profitability and lira depreciation constitute the key risks to the banks' solvency and the pre-impairment operating profit is the key differentiator showing banks’ capability to defend themselves against asset quality weakness, Fitch Ratings said. 

Fitch stress tests, which included Turkey’s eight largest banks, showed the pre-impairment operating profit was weaker for state banks with 2.8 percent on average, compared to private lenders with 5.6 percent. 

This implies three state-owned banks - Halkbank, Ziraat and Vakıfbank - are in a weaker position compared to four private banks, Garanti, Akbank, Yapı Kredi (YKB), İşbank and QNB Finansbank.

“Our analysis shows that loss-absorption capacity is solid at Akbank and Garanti, moderate at YKB, QNB Finansbank and İşbank, and generally more modest at Ziraat and Vakıfbank. Halk's stressed metrics are the weakest and fall below minimum requirements in all stress scenarios,” Fitch said. 

Turkey’s banking sector regulator said last month that aid lenders must reclassify 46 billion liras ($8 billion) in debt as NPLs and set aside extra cash to cover possible losses, pointing to an increase in NPLs in the sector to 6.3 percent of total loans from 4.6 percent. 

Fitch’s analysis showed the five private lenders and Vakıfbank could withstand NPL ratios of above 12 percent calculated according to an exchange rate of 7.1 liras to the dollar, whereas the critical ratios were 9 percent for Ziraat and 6 percent for Halkbank.