This file photo shows signage for Fitch Ratings, Sunday, Oct. 9, 2011, in New York. (AP Photo)
Fitch Ratings expects higher-for-longer Turkish Lira interest rates and persistent inflationary pressures to continue weighing on Turkish banks’ profitability through 2026, with conditions expected to improve in 2027 after interest rate cuts resume in late 2026, according to its latest Turkish Banks Monitor report.
Fitch Ratings said Turkish banks’ average operating profit/risk-weighted-assets ratio weakened further in the second quarter of 2026, mainly due to margin compression following higher funding costs after the outbreak of the Iran war, as well as higher swap costs and continued inflation-driven pressure on operating expenses.
According to Fitch, the average ratio for the banks covered in the report fell to 2.6 percent at the end of the second quarter from 3.9 percent at the end of the first quarter. The sector-wide average declined to 3.3 percent from 4.6 percent over the same period.
The average non-performing loan (NPL) ratio rose to 3.5 percent at the end of the second quarter from 3.3 percent three months earlier, the agency said.
Fitch noted that the share of foreign-currency (FC) deposits among the covered banks fell to about 35.3 percent at the end of the second quarter from 38.1 percent at the end of the first quarter, while FC wholesale funding remained stable at around 20 percent of total funding.
Fitch said it expects external debt issuance by Turkish banks to remain opportunistic for the remainder of the year.
