(MENAFN) Turkish banks are poised for stronger profitability next year as the central bank gears up for a cycle of interest rate cuts, Fitch Ratings’ banking director told media.

Ahmet Kilinc said Fitch had raised its operating environment score for Turkish banks to align with the country rating, speaking on the sidelines of the Fitch on Türkiye event in Istanbul on Tuesday.

The event brought together senior analysts from Fitch Ratings’ sovereigns, corporates, financial institutions, and sustainable finance divisions.

Kilinc highlighted the central bank’s policy shift as the main catalyst behind the rating adjustment.

“When we look at banks in Türkiye, we see capital adequacy is sufficient, with the CET1 ratio around 14-14.5%. Banks have also made many issuances that will support total capital adequacy, and the fact that these are in foreign currency provides protection against possible currency risks,” he said.

While he acknowledged a projected rise in non-performing loans, Kilinc emphasized that reserves remain adequate and asset quality keeps these loans at manageable levels.

Access to foreign markets also played a significant role in the rating outlook. “We saw many banks issuing bonds, which shows they have access to foreign markets and that refinancing risks have decreased, but despite this, foreign currency deposits remain very high,” he said.

“Risks in accessing foreign markets decreased despite high refinancing needs, yet banks’ short-term foreign debt is still high,” he added.

Kilinc noted that cuts in the central bank’s policy rate could bolster banks’ net interest margins, as elevated rates currently pressure asset quality, with declining rates offering potential relief.

“Another important point is that there is around $240 billion in foreign currency deposits,” he said.

“All eyes are on any expected movement in the exchange rate, and while interest rates are going down, we need to look at macro and financial stability, too,” he added.

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