Moody’s Investors Service, the US credit ratings agency, says the creditworthiness of Turkey’s banks is being constrained by ‘persistent macroeconomic and political instability’ and the financial condition of the four major state- owned commercial banks has deteriorated.

‘Turkish governments have repeatedly failed to come to grips with the structural causes of the country’s high fiscal deficit, inefficient public enterprises, a bankrupt social security system and a narrow tax base,’ the agency says in an annual review of the Turkish banking sector. Moody’s rates 14 Turkish banks, all at the country’s sovereign ceiling of B1 for foreign currency debt and B2 for bank deposits. These grades are several notches below investment grade on the agency’s scale of creditworthiness.

Moody’s says the most consistent performers have been the larger, privately owned commercial banks, including Garanti Bankasi, Akbank, Is Bankasi, Pamukbank and Yapi & Kredi Bankasi, with the first two being the best performers. They are big enough to take up opportunities to diversify their business, but may be too unwieldy to respond to rapid changes. The smaller commercial banks’ performance has been more uneven, while the development banks have a mixed record. Turkiye Kalkinma should be recapitalised or closed down, the agency says.

The agency believes that the four state-owned commercial banks, TC Ziraat, Emlak, Halk and Vakiflar, are undercapitalised. They have been losing market share in recent years. ‘Moody’s believes that the role of the state institutions will have to be reassessed. The government is considering privatisation for some, but the financial condition of the largest banks has been allowed to deteriorate while they are still expected to play a social role.’