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Announcement:

Moody's lowers Turkey's country ceiling on foreign currency bank deposits to B2

24 Sep 2018

Sovereign rating not affected

NOTE: On October 19, 2018, the press release was corrected as follows: The heading was changed from “Ratings Rationale” to “Rationale,” and the first sentence of the fourth paragraph of the Rationale section was changed to “The methodology used was Local Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations published in March 2017.“ Revised release follows.

New York, September 24, 2018 -- Moody's Investors Service has today lowered Turkey's country ceiling for long-term foreign currency bank deposits to B2 from B1. Other ceilings are unchanged: the ceiling for short-term bank deposits remains Not Prime (NP); the foreign currency bond ceiling remains Ba2/NP; and the local currency country ceilings for bonds and deposits remain Ba1.

Today's decision does not constitute a rating action. It has no implications for Turkey's sovereign rating (Ba3, with a negative outlook).

RATIONALE

Moody's country risk ceilings determine the maximum credit rating achievable for different classes of debt issuer domiciled in a particular country or for securitisations whose cash flows are generated from domestic assets or residents. The foreign currency deposit ceiling determines the highest rating that may be assigned to deposits held with domestic institutions denominated in foreign currency. It essentially reflects the risk that action by the government would intervene in some way to constrain deposit holders' access to their foreign currency deposits.

Moody's decision to lower the foreign currency deposit ceiling reflects the rating agency's view that the risk of the government intervening to prevent the withdrawal of foreign currency-denominated deposits in order to conserve Turkey's foreign currency reserves has risen. That in turn reflects recent and prospective pressure on those reserves, the large overall value of foreign currency deposits in the banking system relative to those reserves and the recent steep currency depreciation. Turkey's central bank reserves remain very low by comparison to currency debt payments falling due over the next year, in particular by the banks and non-financial private sector companies, and continue to shrink. Moody's expects this negative trajectory to continue in the months ahead in view of the large external debt repayments coming due.

Today's announcement also reflects the ongoing weakening of Turkey's institutions and the increasingly unpredictable policy environment, as exemplified by the recent presidential decree forcing the redenomination of property contracts between Turkish entities. The decision to lower the foreign currency deposit ceiling to two notches below the government bond rating reflects Moody's view that the government may come to conclude that inhibiting access to foreign currency deposits is necessary if pressures on the balance of payments and thereby on its own debt are to be alleviated. The risk that the government places constraints on deposit holders' access to their foreign currency deposits is therefore higher than the risk that it defaults on its own debt.

The methodology used was Local Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations published in March 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Kristin Lindow
Senior Vice President
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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