Turkish banks' external debt increased in the first six months of the year but the sector's foreign currency (FC) liquidity remains sufficient to cover maturing short-term FC debt, according to Fitch Ratings on Thursday.
"Banks' external debt rose $9 billion to $172 billion in the first half of this year, reflecting a pick-up in bond issuance in benign market conditions and foreign-exchange movements that resulted in upward revaluations of euro and lira obligations," a written statement said.
"More than half of this debt, $96 billion, is short-term, as measured by remaining maturities. However, net of the most stable sources of funding, we estimate an external debt service requirement of $50 billion - $55 billion over 12 months," it added.
Turkey's banking sector made 25.35 billion Turkish liras (nearly $7.25 billion) net profit between January and June this year, an increase of 33.2 percent year-on-year, according to the Banking Regulation and Supervision Agency of Turkey.
Fitch also stated that the banking sector would maintain an adequate access to debt market with an ability to roll over its foreign debt, "while their available FC liquidity should mean they are reasonably placed to cope with a short-lived market closure".
The agency warned, however, that a prolonged loss of market access would bring considerable risks for banks' FC liquidity and Turkey's external finances more generally.
"A scenario in which banks need to pay down foreign debt carries considerable risks because of likely associated pressures on FC reserves, the exchange rate, interest rates and economic growth," it said, adding banks were Turkey's main external borrowers, making up 40 percent of the country's foreign debt.
"The banking sector's net FC position is close to zero, but banks are exposed to significant credit risk on FC loans to weakly hedged corporates," Fitch said.
Turkish banking sector posted 37.5 billion Turkish liras (around $10.7 billion) net profit last year while total assets of the sector stood at 2.73 trillion liras (some $778 billion) as of Dec. 30, 2016.
In Turkey, over 50 state/private/foreign lenders, including deposit banks, participation banks, development and investment banks had nearly 12,000 domestic and overseas branches with more than 210,000 employees as of June 2017.
