Moody’s Investor Services has upgraded its outlook for Turkey’s banking sector from negative to stable, a welcome boost to a cash-strapped country undergoing an economic turnaround.
"The operating environment for Turkish banks remains challenging and volatile, weighed down by an anticipated slowdown in economic growth and persistently high inflation," the US rating agency wrote in a Tuesday update. "Nevertheless, the government’s initial steps to return to orthodoxy in policymaking following the elections in May 2023 is supportive of operating conditions for Turkish banks."
Turkey has been hampered by high inflation and a tumbling lira, leading to sluggish economic growth and weakened asset quality in local banks, according to the report. Moody’s projected Turkey's economic growth to be 4.2% at the end of 2023, falling from 2022’s 5.6%.
"Profitability will normalize from the peaks recorded in 2022, but nevertheless remain strong," Moody's added. "The banks' external funding position and dollarisation levels have improved and we expect liquidity, particularly foreign currency, to remain adequate."
