Moody's Investors Service is maintaining its negative outlook on Turkey's banking system, reflecting the rating agency's expectation of weakening financials for the country's banks amid a challenging operating environment.
Although Turkish banks' financials remained resilient in 2016 and early 2017, Moody's expects a combination of factors, including domestic political and geopolitical tensions, potential currency depreciation, and weakening investor confidence, to take a toll on these going forward.
As noted in April 2017, Moody's expects economic growth in Turkey to slow to an average of 2.8% in 2016-2018, significantly below the 7.4% average over the previous six years, against a backdrop of lower domestic confidence, potential further lira depreciation and high inflation.
Although asset quality has so far proved resilient, aided by non-performing loan sales and regulatory forbearance, the rating agency expects the challenging macro environment to drive problem loans to above 4% over the next 12-18 months from 3.2% at end-2016.
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