Thursday 19, July 2018 by Kudakwashe

RAM Ratings downgrades Turkey’s rating to with a stable outlook


The ratings follow a recent erosion of fiscal discipline as well as deterioration of governance indicators.


RAM Ratings has downgraded Turkey’s sovereign ratings to gBB2 with a stable outlook.

The downgrades reflect the heightened probability of an adverse economic shock and materialisation of fiscal contingency liabilities, after the re-election of President Erdogan.

Inflation up surged at a fastest annual pace in 14 years increasing from 11.1 per cent in 2017 to 15.4 per cent in June 2018 amid a prolonged period of unsustainable credit-fuelled growth, this saw RAM elevating the risk to economic growth.

The increase in prices occurred simultaneously with the depreciation of the lira, which lost 20.3 per cent of its value in the first six months of 2018. RAM ratings expect these conditions to persist, present a risk to corporate profitability as the cost of imported inputs and foreign-currency debt servicing rise.

Notably, there has been also an increased frequency of high-profile corporate debt restructuring exercises in recent months.

Additionally, current global conditions have worsened Turkey’s vulnerable external position.

The ongoing tightening of global monetary policy conditions and higher oil prices will likely contribute to the depletion of the country’s already inadequate reserves this year as well as the increase in imports which will be driven an upsurge in gold imports amid unanchored inflationary expectations.

Investor risk aversion is anticipated to remain elevated in view of political developments in recent months which is likely to amplify the relative cost of external debts for the country’s firms, an indicator that poses another growth risk.

While any upside to Turkey’s ratings is limited in the near term, the ratings may be upgraded if structural reforms result in a sustainable improvement in growth outlook or external position, added RAM Ratings.

The downgrading of the country’s sovereign rating has also impacted on the ratings of Turkish banks.

Turkiye Finans Katilim Bankasi’ long-term rating was downgraded to A1 stable from AA3 negative, also Kuveyt Turk Katilim Bankasi’ s long-term rating was revised to A1 with a stable outlook.


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