Are the banks prepared for a post-election rate hike? Fitch replied…

The credit rating agency Fitch Ratings has produced a report on how Turkish banks will behave after the elections.

In the report released today, Fitch said that if monetary policy tightens in Turkey after the election, the impact of the interest rate hike on Turkish banks will depend on the size and speed of the hike.

In the report, it was stated that a modest increase in interest rates that leads to a decrease in financial stability risks can be positive for loans, but a large and rapid increase in interest rates, which leads to a contraction of credit, can cause a significant deterioration in the assets. quality.

THE RAPID INCREASE OF INTEREST MAY NEGATIVELY AFFECT

Stating that the potential rate of increase in interest rates is important to Turkish banks, Fitch said: “If restrictions on loan pricing are relaxed, banks will be able to re-price their loans.” Fitch’s assessment indicated: “This may offset the underyielding effect that can occur on CPI-indexed bonds as a result of falling inflation.”

Stating that gradually increasing interest rates provide enough cushion for banks from the erosion that can be generated in asset quality, Fitch said that a rapid increase in interest rates, which can lead to a possible crisis credit crisis, recessionary pressures and high unemployment, can have a serious negative impact on banks.

“All Turkish banks are rated at ‘B’ category and almost all at Negative Outlook due to significant risks to their credit profiles,” the report says.