Drivers for the review included pressures on the standalone credit strength of the institutions, and Moody’s evolving views on the level of systemic support that should be incorporated in the senior ratings.
Regarding pressures on the bank’s standalone credit strength, the operating environment for the banking system will become more challenging over the next 12-18 months because of (1) a material slowdown in real GDP growth, which is still; (2) increased funding costs for Turkish banks because of the impact on emerging markets from US Fed tapering and the economic recovery in developed markets, both of which are tightening global liquidity; and (3) a climate of uncertainty affecting the banks because of Turkey’s current political developments.
Moody’s evolving views on the degree of systemic support that is incorporated in most Turkish banks’ senior ratings. This is in light of the fact that the banking system and its financial obligations have grown significantly in relation to GDP in recent years, and will continue to do so in the coming years, increasing the potential cost of any government support, in case of need.
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