Critical statement from Fitch about Turkey: We have upgraded Turkey's credit rating.

One of the three major credit rating agencies in the United States, Fitch Ratings Inc., held a webinar titled "Turkey: Progress and Challenges in the Process of Policy Rebalancing." During the webinar, Fitch Ratings' Senior Director and Turkey Analyst Erich Arispe Morales stated that Turkey's credit rating was upgraded due to a decrease in external vulnerabilities and high financing needs.

HIGH INFLATION AMONG THE BIGGEST PROBLEMS

Morales said, "The main challenges facing policies are high inflation and macroeconomic vulnerabilities." He also emphasized that the risk of a policy reversal and the danger of early policy easing should be taken into account. Expressing that he expects tight monetary conditions to continue until the first quarter of 2025, Morales noted that these conditions could change with the Central Bank starting to cut interest rates in the first quarter of next year.

Morales reported that they expect the public budget deficit to GDP ratio to decrease to 5.1% in 2024, 3.1% in 2025, and 2.6% in 2026, and he added that there has been an improvement in Turkey's debt composition and debt rollover ratio. It was noted that banks continue to be the main players in the domestic borrowing markets.

"BANKS' PROFITABILITY MAY DECREASE"

Ahmet Kılınç, Director of Banks at Fitch Ratings, expressed that the profitability outlook for Turkish banks in 2024 is weak, stating, "The reasons for the weakness in the profitability outlook include high funding costs, inflationary pressures, and a moderate increase in risk costs." Kılınç noted that foreign currency loans, which have been decreasing since 2018, increased by 27 billion dollars by the end of 2023. He added, "This increase reflects the high cost of borrowing in TL and the relative stability of the exchange rate."