S&P Global Ratings has underscored Türkiye's commitment to tight monetary policies and a shift towards more conventional economic strategies, which support its BB- sovereign rating with a stable outlook. Karen Vartapetov, S&P’s director for Central and Eastern Europe and Türkiye, noted that this rating reflects significant progress made since early 2023 when the government began to reverse a long-standing ultra-loose monetary approach in response to rising inflation.
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Recent developments include slower disinflation, influenced by higher energy costs and geopolitical disruptions, with annual inflation dropping below 30% in September. Vartapetov indicated that the central bank's tight policies are influencing domestic demand and credit growth, allowing it to maintain a focus on disinflation despite a delay in progress.
On Thursday, the central bank decreased its key interest rate to 36% following lower-than-expected inflation data for September. Vartapetov remarked on the new economic team’s growing credibility, though he emphasized uncertainty regarding the sustainability of their policies in light of imminent elections, scheduled for May 2028 but possibly moved forward.
In terms of banking risks, Regina Argenio, director of financial institutions at S&P, affirmed Türkiye's Banking Industry Country Risk Assessment. She explained that while the banking sector faces considerable risks, recent progress in addressing inflation and improved economic forecasts justify a manageable outlook. Key factors include banks’ capacity to manage external debt and potential disruptions.
Credit growth is currently hindered by high interest rates, but Argenio suggested 2024 might see improvement if monetary easing benefits lending conditions. She highlighted that SMEs and retail customers are particularly affected by high financing costs, presenting asset-quality risks for banks.
S&P also commented on the recent crisis involving over 100 investment funds, which were liquidated amid allegations of asset manipulation. Vartapetov described this situation mainly as a governance issue rather than a threat to financial stability, noting that most withdrawn funds have been redirected into lira deposits. He stated the importance of lessons learned regarding supervision improvements.
Argenio indicated that the impact of the fund crisis should be limited if it remains isolated, commending the strong policy response aimed at maintaining sector liquidity. However, she cautioned that external borrowing costs are likely to rise due to global interest rate trends, potentially increasing risk premiums for Turkish borrowers depending on the resolution of these current issues.