Turkish banking sector is regulated and monitored more favorable than emerging economies, but it is still reliant on short-term external debt, according to global rating agency Standard and Poor's (S&P) on Monday.
"Our assessment of [banking] industry risk in Turkey, at [group] six, largely reflects relatively low domestic savings, which partly explains why Turkish banks are more reliant on short-term external debt than their peers in other countries," S&P said.
According to the rating agency's report, Turkey's banking sector has been classified in group six with Brazil, Italy, Thailand, Slovenia, Brunei, Colombia, Guatemala, Trinidad and Tobago, and Uruguay.
S&P highlighted moderate household and corporate indebtedness in Turkey along with bank regulation, supervision and governance, comparing it favorably with that of many emerging economies.
"Positively, the [banking] system remains structurally stable and continues to adequately price risks, as demonstrated by healthy profitability metrics," the agency said.
Noting the factor of weaknesses, the S&P underlined moderate per capita income and high inflation in Turkey.
"Although banks have granular and well-diversified loan books, their credit risk is accentuated by rapid credit growth in years of fast economic growth and high share of lending in foreign currency," the agency added.
S&P holds Turkey's foreign currency credit rating at BB and its local currency credit rating at BB+ in the long term. The rating agency released latest update for the country in January by lowering Turkish economy's outlook to "negative" from "stable".
