Fitch indicated in its research issued yesterday that if Turkey implements a restrictive monetary policy, the impact of the TL interest rate hike on Turkish banks will be determined by the amount and pace of the increase.
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| Inflation in Turkiye |
Fitch Ratings has created a research on how Turkish banks would act following the election.
Fitch stated in a research issued today that if Turkey's monetary policy is tightened following the election, the impact on Turkish banks will depend on the amount and pace of the rise.
According to the paper, a minor increase in interest rates that results to a reduction in financial stability concerns may be beneficial to loans, while a big and quick increase in interest rates that leads to a credit crisis may cause considerable deterioration in asset quality.
QUICK INTEREST RISE MAY HAVE A NEGATIVE EFFECT
Fitch stated that the potential rate of interest rate increase is essential for Turkish banks, saying, "If the restrictions on loan pricing are relaxed, banks will be able to reprice their loans." According to Fitch, "this may offset the low yield effect that may occur in CPI-indexed bonds as a result of falling inflation."
Fitch stated that a gradual increase in interest rates provides enough buffer for banks to protect against asset quality erosion; however, a rapid increase in interest rates, which can lead to a potential credit crisis, recessionary pressures, and high unemployment, can have a serious negative impact on banks.
"All Turkish banks are rated in the 'B' category, and almost all have a negative outlook due to significant risks to their credit profiles," according to the research.