TODAY’S – Lira extends losses after Fitch bank report

Lira extends losses after Fitch bank report The Turkish lira slipped to its lowest point since March 28 on Wednesday following a Fitch warning that Turkish banksand#39 rapid credit growth and higher external debt have increased downside risks.The lira fell to 21805 against the US dollar and stood at 21791 on Wednesday afternoon compared to 217 late on Tuesday.

The currency was already under pressure amid domestic political uncertainty and geopolitical risks in Turkeyand#39s surrounding region.The main share index Borsa Istanbul (BIST) was down 069 percent at 78,728 points while the benchmark two-year government bond yield increased 05 percent to 928 percent on Wednesday.

Fitch said in a report that Turkeyand#39s four largest private banks — Akbank, Garanti, II BankasI and YapI Kredi — have solid capital buffers, although these have weakened steadily.andldquoForeign liabilities have increased, particularly at the short-end, as loan demand has outpaced deposit growth.

Increased short-term borrowing and uncertainty over the ability to monetize foreign-currency assets in a stress scenario leave banks more vulnerable to downside risks,andrdquo Fitch said. The agency added that Turkish banks have limited foreign currency cash and unencumbered foreign securities, andldquoso they would have to draw down on central bank reserves to service external debt.

andrdquoThe combined loans of the four banks has expanded since year-end 2008, the rating agency said, adding: andldquoWhile reported loan quality metrics are healthy, rapid growth partly helps to mask performance deterioration. Fitch estimated that total loan growth in Turkey will be around 15 percent to 20 percent for this year, below its recent historical pace.

Sharp interest rate changes and a fluctuating lira against major currencies are likely to persist in Turkey, it added, saying that the credit profiles of the four largest private banks are sensitive to the volatile operating environment.andldquoThe banksand#39 broad and diversified franchises are a source of credit strength.

Capital is still comfortable by international standards with all four banks. But the buffers have been eroded since 2010.

Growth, tougher regulatory demands and the impact of lira depreciation on foreign currency assets have pushed down regulatory capital ratios,andrdquo Fitch saidAccording to Fitch, weaker and volatile capital markets also depressed capital in 2013 where securities are marked-to-market through equity in Turkey.

SOURCE: Today’s Zaman