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Rating Action:

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

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 status quo.

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.

New York
Kristin Lindow
VP - Senior Credit Officer
Sovereign Risk Unit
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
David H. Levey
Managing Director
Sovereign Risk Unit
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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