ISTANBUL--Moody's Investors Service said Monday Turkey's
monetary tightening is credit negative for banks, as it expects the
central bank's measures to constrain banks' revenue generation and
profitability.
"We expect the interest rate increase to result in higher
domestic funding costs and a slowdown in Turkey's (Baa3 stable)
economic growth, which will pressure banks' profitability and asset
quality during 2014, a credit negative," Irakli Pipia, vice
president-senior analyst at Moody's, said in his report.
Last week, the central bank aggressively raised its interest
rates to shore up the lira and ease inflationary pressures. The
central bank more than doubled its one-week benchmark repo rate to
10% from an all-time low of 4.5% and also increased its overnight
lending rate to 12% from 7.75% and overnight borrowing rate to 8%
from 3.5%.
"These measures were aimed at alleviating the Turkish currency's
and capital markets' financial stress and may stem some of the
extreme volatility, which was causing significant stress for
corporate borrowers and importers," Moody's said.
Moody's said it expects tighter monetary policy to increase the
downside risks to its 3% economic growth forecast for 2014 and,
hence, the operating environment for Turkish banks.
"We expect that downside risks to Turkey's economic growth from
the sharp monetary tightening will harm the credit quality of
existing loans and limit opportunities for lending growth. However,
since 2008, Turkish banks' profitability indicators (net income
over risk-weighted assets) have been among the strongest versus
selected regional and global peers," Moody's said.
Turkey is rated BBB- by Moody's, the firm's lowest
investment-grade level.
Write to Yeliz Candemir at yeliz.candemir@wsj.com