ISTANBUL: Three of Turkey’s leading private banks led the country’s main stock index lower yesterday, after ratings agency Fitch downgraded their ratings. The lira weakened as violence spread in neighbouring Iraq.
Fitch downgraded ratings for Isbank, Garanti and Akbank. It also revised its outlook of Yapi Kredi to “negative” from “stable,” in line with its parent, Unicredit, which operates in Turkey through a an equal partnership with Koc Holding.
“The downgrades ... reflect increased risks from recent rapid credit growth and higher external debt, against a background of moderate deterioration in most financial metrics in recent years,” a statement from Fitch said.
Turkey has introduced measures to curb rampant growth in consumer loans and shift away from consumption-led growth, in an effort to reduce a gaping current account deficit. The deficit is financed by foreign capital, making Turkey vulnerable to shifts in global liquidity.
Isbank, Garanti, Akbank and Yapi Kredi were down more than 1 percent by 0758 GMT. The main Istanbul share index fell 0.85 percent to 78,317.29, underperforming the MSCI index of emerging markets which was down 0.45 percent.
The Turkish lira slipped on concerns about escalating violence in neighbouring Iraq. Iraq is Turkey’s second-largest export market, and Turkish finance minister warned the crisis is likely to weigh on the country’s current account deficit.
Security forces fought Sunni armed factions for control of Iraq’s biggest oil refinery on Tuesday and militants launched an attack on one of its largest air bases, less than 100km from the capital. The lira had weakened to 2.1401 against the dollar from 2.1325 late on Tuesday, when the central bank cut its main interest rate by 75 basis points, slightly more than expected, citing an improvement in the global liquidity in recent months.
Turkish Economy Minister Nihat Zeybekci said on his Twitter account yesterday the rate move was near market expectations but far from meeting manufacturers’ expectations.
Since an emergency rate cut at the end of January, the central bank has been under pressure to cut rates from a government keen to protect growth months before the first popular presidential elections. However, some analysts warned that the lira remains vulnerable to global conditions despite recent improvements in risk indications and regional instability with “considerable risks” remaining.
“Upon the heightening of the insurgent activities in Iraq, the Turkish lira faced the greatest depreciation pressure among the emerging market currencies,” a note from Finansbank said. “We think that lowering interest rates in such a global environment will expose the currency at times of deterioration in risk perceptions.”
Economists looked to a regular closed-door presentation from the central bank in Ankara for more information on Tuesday’s decision and for signs of monetary policy and inflation outlook.
The yield on Turkey’s 10-year benchmark government bond inched up to 8.90 percent from 8.84 percent at Tuesday’s close.