Fitch Ratings warned that recent political developments in Türkiye, including the arrest of Istanbul’s mayor Ekrem İmamoğlu and subsequent protests, have caused market volatility and could disrupt the recent positive momentum in Turkish financial institution (FI) ratings.

Turkish banks are the most vulnerable in the near term due to their significant exposure to foreign currency (FC) volatility and external debt. Although banks have seen rating upgrades since the 2023 elections, persistent unrest and shifts in investor sentiment could heighten refinancing risks and increase dollarization. Akbank’s successful loan rollover is a positive sign, showing that markets have not yet turned away.

Lira depreciation could strain banks’ capital adequacy by increasing FC risk-weighted assets, while higher interest rates delay margin recovery. Asset quality might deteriorate further if macroeconomic conditions worsen.

Currently, most large Turkish banks are rated ‘BB-’, with those at ‘B+’ or below on Positive Outlooks based on improved market access and economic rebalancing expectations. Fitch maintained its base case for the continuation of Türkiye’s economic program, reflected in the central bank’s rate hike to 46%. However, if volatility continues or policy direction changes, Fitch could revise the banks’ outlooks to stable.

Non-bank financial institutions are more insulated but still face risks. Lessors may see declining demand due to currency risks, while factoring firms—exposed to SMEs—are sensitive to credit risk but can adapt quickly. Most insurers are shielded in the short term due to their conservative portfolios, though the long-term impact depends on inflation, interest rates, and exchange rates.

Overall, while Fitch has not changed any ratings yet, sustained volatility or a policy shift could lead to rating outlook downgrades, especially if the government’s foreign currency reserves weaken relative to banking sector liabilities.

https://www.fitchratings.com/research/banks/turkish-market-volatility-could-disrupt-fis-rating-momentum-22-04-2025