Turkish banking stocks slide after Moody's cut, rate hike

Turkish banking shares dropped in Istanbul after a ratings downgrade by Moody's and the nation’s central bank raised rates more than expected in a decision on Thursday.

The main index of Turkey’s listed banks fell 2.2 percent to 134.191,60 at 10:50 a.m., the lowest level since January 2017. Garanti Bank, decreasing 2.5 percent, and Yapi Kredi Bank, shedding 2.3 percent, led the declines.

Turkey’s central bank hiked the benchmark one-week repo lending rate by 125 basis points to 17.75 percent on Thursday, more than economists’ estimates of a 50-100 basis-point increase. Higher borrowing costs for banks translate into narrower profit margins on lending or require them to raise their own rates on loans to businesses and consumers, crimping demand.

Moody's downgraded the ratings of 17 Turkish banks late on Thursday, citing a deteriorating operating environment, their exposure to short-term foreign currency loans and an increase in problem loans.

Turkish banking stocks have slid more than 30 percent from a January high, lagging the performance of their emerging-market peers, on concern that an overheating economy and accelerating inflation is reducing revenue and increasing loan risks. Banks have reported a surge in restructured lending as businesses struggled to repay their debts in foreign currency amid a slide in the lira’s value.

Cemil Ertem, senior economic adviser to President Recep Tayyip Erdoğan, said on Thursday that he expected banking stocks to surge as confidence in the industry strengthened.

The lira fell 0.6 percent to 4.51 per dollar on Friday. It slumped to a record low of 4.92 per dollar in May, before the central bank intervened with a rate hike of 300 basis points amid concerns about a possible currency crisis.

Turkey’s main BIST-100 share index, which dropped 1.9 percent on Friday, is at its lowest level in dollar terms since the 2008 financial crisis.

Inflation in Turkey accelerated to 12.2 percent in May, about four times the emerging-market average, from 10.9 percent the previous month, the Turkish Statistical Institute said on Monday.