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05 Dec 2000
MOODY'S PLACES FINANCIAL STRENGTH RATINGS OF TURKISH BANKS ON REVIEW FOR POSSIBLE DOWNGRADE AS LIQUIDITY CRISIS CONTINUES
Potential impact of current crisis on the financial strength of rated Turkish banks will be assessed during the next several days
Limassol, December 05, 2000 -- Moody's has placed the financial strength ratings (FSRs) of all Turkish
banks that are currently rated between E+ and C on review for possible
downgrade. The review results from the current liquidity crisis
and the ensuing high level of interest rates, which are inevitably
having an impact across the whole financial system. If there are
to be banking failures - and this appears increasingly likely -
they are likely to happen sooner rather than later, and so Moody's
intends to conclude its review within the next several days.
The B2 long-term foreign currency deposit ratings currently assigned
to all banks were put on review for possible upgrade in July this year
concomitant with the review of Turkey's sovereign ratings, and remain
on review for possible upgrade. Moody's said that it continues
to believe that it is appropriate for the banks' foreign currency deposits
to be rated at the ceiling for such ratings. Any rated bank that
cannot meet its deposit obligations as a result of recent market events,
should be taken over by the Deposit Insurance Fund and losses to depositors,
if any, should be minimal. Moody's also placed on review
for possible downgrade the ratings of the two banks that have been assigned
local currency deposit ratings, namely Akbank (A3/P-2) and
Ottoman Bank (Baa1/P-2), as these local currency ratings
closely correlate with the financial strength ratings.
In the context of the current liquidity crisis, Moody's recognises
that some small- to medium-sized banks, especially
those that entered the current crisis with a high repo book to fund,
may well have been among the most badly affected. Nevertheless,
it will be hard for any bank to come through this crisis unscathed.
Moody's said that the banks that have been assigned higher FSRs have sound
management, are aware of the risks in the banking products and services
they provide, and apply sophisticated decision making processes.
This should shield them from the most severe dislocations, but the
current challenges are systemic and could have some impact on the financial
strength of even the best banks. On the other hand, it may
also give opportunities for some to strengthen their position in the market.
The relative success of the reform programme this year had seen interest
rates falling dramatically from their levels of 1999 and assets on the
books of banks are returning much lower interest than the rates that banks
must pay today for their funding. It appears that the domestic
interbank market has totally dried up and banks must turn to their shareholders,
long standing corporate and retail customers as well as close counterparties
in the domestic and foreign markets that are still able and willing to
While Moody's believes that the first impact of the crisis is being felt
by those banks with the highest levels of repo book, there is nevertheless
a risk that a resolution of the most imminent issues may not result in
a fall in interest rates to levels seen earlier this year. Confidence
must be restored to the market and this may require significant financial
backing from the IMF as well as the removal from the system of the weakest
and most illiquid of the banks.
If rates remain at high levels for any length of time, those banks
that have moved aggressively into fixed-rate retail lending will
quickly find that their solvency is compromised. Retail loans typically
have a longer maturity than other lending, and the profit that banks
had hoped to achieve will not be realised. However, this
is a longer-term concern while the present liquidity problems affect
A further concern is the banks' open position. Moody's warned about
the quality of the counterparties to hedges in its Turkey Banking System
Outlook published earlier this year. The level of mismatch is hard
to determine, but Moody's said that it is likely to be high.
Banks have been tempted to open their positions because of the predictability
of the exchange rate this year and the additional income to be gained
by switching foreign currency liabilities into local currency assets.
If the IMF-inspired programme were to fail and devaluation of the
Turkish lira became a consequence, the group of banks with the highest
open position could feel a serious impact.
Moody's added that Turkey is a market that is often swept by rumour and
often these rumours turn out to be without foundation. Moody's
intends to review the position of each bank closely before reaching its
conclusion over the next few days.
The ratings placed on review for possible downgrade are the following:
Akbank: FSR of C; Local currency deposit ratings of A3/P-2
Demirbank: FSR of D
Finansbank: FSR of D
Iktisat Bankasi: FSR of D
Kocbank: FSR of D
Osmanli Bankasi: FSR of D+; Local currency deposit ratings
Pamukbank: FSR of D
Toprakbank: FSR of E+
Turk Dis Ticaret Bankasi: FSR of D
Turk Ekonomi Bankasi: FSR of D+
Turkiye Garanti Bankasi: FSR of C
Turkiye Is Bankasi: FSR of D+
Turkiye Vakiflar Bankasi: FSR of D
T. C. Ziraat Bankasi: FSR of E+
Financial Institutions Group
Moody's Interbank Credit Service Ltd.
Vice President - Senior Analyst
Financial Institutions Group
Moody's Interbank Credit Service Ltd.
No Related Data.
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