Turkish banks’ asset quality to deteriorate in 2020, Fitch says

Ratings agency Fitch said the asset quality of Turkey’s banks was expected to deteriorate further in 2020.

Non-performing loans (NPLs) in the industry are expected to increase to between 7 percent and 8 percent of total gross loans by the end of the year from 5.2 percent in mid-November, Fitch said in a report on its website on Monday.

Fitch said its forecast for NPLs assumed no market shocks or significant efforts by the Turkish government to clean up banks’ balance sheets.

Turkish banks have been saddled with a growing pile of bad debt after a currency crisis in the summer of 2018 made it more expensive to repay foreign currency loans and sparked a deep economic downturn.

Fitch pointed to a decline in the ratio of interest receipts from loans versus interest accrued, which typically indicates missed or delayed payments and a rising trend in NPLs. It said it analysed movements in the interest ratio for 10 major banks representing about 70 percent of the industry in terms of assets.

The ratio fell to about 84 percent in 2018, and to 83 percent in the third quarter of 2019, from about 93 percent in 2017, Fitch said. Most of the decline was due to missed or delayed payments of interest on loans, with loan interest receipts falling 7 percent short of accrued loan interest by September last year, it said.

Fitch said it would continue to look beyond NPLs in assessing asset quality, including at restructured loans and interest cash flow.

Credit quality remains under pressure in Turkey and in the Gulf Cooperation Council (GCC) region, Fitch said in a report last month.