Fitch sees Turkish banks as stress-resistant

According to Fitch Ratings, Turkish banks could also cope with the burdens of a prolonged Iran conflict without needing additional capital injections from their shareholders. This is the result of a stress test carried out by the rating agency. Even in the most severe scenario, in which the USD/TRY exchange rate rises to 75 by the end of 2026 and the ratio of non-performing loans increases to 7.5 percent, only one bank would fail to meet the regulatory capital requirements: the state-owned Halkbank. Fitch tests several stress scenarios According to Basel III rules, Turkish banks must maintain a minimum common equity tier 1 ratio of 4.5 percent. Fitch tested the capitalization of nine large Turkish banks under significantly worse assumptions than in the baseline scenario. In the base case scenario, Fitch expects a USD/TRY exchange rate of 49.5 and a non-performing loan ratio of 3.4 percent by the end of 2026. The agency considers these two factors to be the most important risks to the solvency of the Turkish banking sector. The calculation of risk-weighted assets in foreign currencies also plays an important role. If the current regulatory tolerance were to be completely removed, exchange rate movements would have a greater impact on capital ratios. Fitch assumes that a 10 percent devaluation of the lira would reduce the average CET1 ratio of the banks analyzed by around 50 basis points. An increase in the NPL ratio by 1 percentage point would reduce the ratio by around 46 basis points by the end of 2026. Only one bank falls below the threshold in the toughest scenario In the more favorable stress scenario, with a USD/TRY exchange rate of 60 and an increase in the NPL ratio of 2.5 percentage points, none of the banks examined would violate the statutory minimum requirements. Only in the most severe scenario would a bank fall 108 basis points short of the minimum ratio for common equity tier 1 capital. According to Fitch, state banks currently have an average operating profit buffer of 5.5 percent of gross loans, while private banks have 7.2 percent. The ratio of non-performing loans was 2.5 percent at the end of 2025 and 2.7 percent in mid-April 2026. Fitch expects a further increase in 2026, but considers this to be manageable. Unsecured retail loans and loans to small and medium-sized enterprises remain particularly vulnerable, as they are more sensitive to economic cycles and high lira interest rates. Fitch does not take into account any countermeasures by banks, additional regulatory relief or support from shareholders in the stress tests. However, the ratings themselves take into account that foreign parent companies can usually support banks such as QNB Turkey, Denizbank or Garanti BBVA. Possible support from the Turkish authorities is also taken into account for state-owned banks. On January 1, the Turkish banking regulator BDDK lifted two important simplifications in the calculation of risk-weighted assets. Fitch estimates that this will reduce capital ratios by 170 to 200 basis points on average. However, such relief could be reintroduced if there is strong pressure. According to Fitch's assessment, profits remain an important buffer. Turkish banks could absorb credit losses through their operating income before impairments. These buffers are on average higher for private banks than for state-owned institutions. The buffer is highest at QNB Turkey and lowest at Halkbank. The article Fitch sees Turkish banks as stress-resistant appeared first on ostwirtschaft.de.