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06 Apr 2001
MOODY'S ASSIGNS B3 FIRST-TIME RATING TO TURKEY'S DOMESTIC DEBT; DOWNGRADES COUNTRY CEILING FOR FOREIGN CURRENCY BANK DEPOSITS TO B3 FROM B2, OUTLOOK NEGATIVE; 16 TURKISH COMMERCIAL BANKS AFFECTED
COUNTRY CEILING FOR FOREIGN CURRENCY BONDS REMAINS B1
New York, April 06, 2001 -- Moody's Investors Service has assigned a first-time rating of B3
to the Turkish lira-denominated debt of the Republic of Turkey.
Moody's also has downgraded Turkey's country ceiling for foreign currency
bank deposits to B3 from B2. Accordingly, the agency has
lowered the foreign currency bank deposit ratings of the sixteen Turkish
commercial banks that it rates to B3 from B2. However, the
country ceiling for foreign currency bonds and notes remains at B1.
The outlook on the foreign currency country ceilings for both debt and
deposits, on foreign and domestic currency government bond ratings,
and on the deposit ratings of the commercial banks have all been changed
to negative from stable. In addition, the outlooks have been
changed from stable to negative on the senior unsecured foreign currency
debt of three banks, namely Turk Exim Bank, Turkiye Vakiflar
Bankasi and T.C. Ziraat Bankasi.
Moody's explained that these rating actions were taken to reflect its
growing concerns about recent unsustainable trends in the public debt
dynamics, based on the high interest rates and short maturities
that have been accepted during the latest domestic debt auctions.
In the six weeks since the exchange rate anchor was abandoned, investor
confidence and the financial markets have remained highly unsettled.
The macroeconomic framework has not yet been fully elaborated, but
indications thus far suggest that it may be insufficiently tight to restore
monetary stability, particularly as the cost of recapitalizing the
banking system continues to escalate. The Central Bank of Turkey's
new auction system introduced for allocating foreign exchange has reinforced
the lack of confidence in the value of the lira. This has exacerbated
devaluation pressures and inflationary expectations, which contribute
to the high interest rates demanded by investors. Finally,
the likelihood of a severe economic downturn poses risks to the political
Moody's has decided to keep the country ceiling on foreign currency bonds
and notes at B1 because the government faces relatively modest bond repayment
requirements over the next year and also possesses sizeable foreign exchange
reserves. Additional foreign credits have already been agreed that
are likely to be advanced more quickly, and permission is likely
to given for them to be utilized partly for budgetary purposes rather
than to bolster expansion of the foreign reserves. Also,
the current account surplus is expected to be quite large for the next
two years in light of the very weak domestic demand conditions and the
large devaluation, which will help to fund any capital account obligations.
The outlook on the foreign currency debt ceiling has been changed to negative,
however, because the government's access to multilateral as well
as private capital market financing could be impaired should reform efforts
stumble. The authorities recently have denied that they might choose
to implement unorthodox policy alternatives to deal with the domestic
debt burden. In these circumstances, the new ratings levels
more appropriately indicate the current risks.
The rating agency noted that market participants and policymakers are
expecting substantial commitments of new external financing to be made
available to the Republic. These credits would presumably be extended
in the context of a reformulated economic program with the IMF.
In Moody's opinion, the government still has the opportunity to
restore confidence and stabilize markets, building on the structural
reforms and fiscal adjustments that were implemented under last year's
IMF program. To achieve these goals and to resume the disinflation
process, the government will need to display a firm and unified
commitment to banking and public sector reform and to improved governance
in the near term. Some of the events of recent weeks, such
as the appointment of a well-respected Economy Minister and team,
the passage of several key reform laws, establishing a non-political
board to manage the three main public sector banks, and especially,
the efforts to design a new stabilization program, are steps in
the right direction.
The long term foreign currency deposit ratings of the following banks
have been lowered from B2 to B3 with a negative outlook: Akbank,
Demirbank, Finansbank, Iktisat Bankasi, Interbank,
Turkiye Is Bankasi, Kocbank, Ottoman Bank, Pamukbank,
T.C. Ziraat Bankasi, Toprakbank, Turk Dis Ticaret
Bankasi, Turk Ekonomi Bankasi, Turkiye Garanti Bankasi,
Turkiye Emlak Bankasi, and Turkiye Vakiflar Bankasi.
VP - Senior Credit Officer
Sovereign Risk Unit
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
David H. Levey
Sovereign Risk Unit
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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