Kaynak: https://www.fitchratings.com/site/pr/1026859
Fitch Affirms Turkey at 'BB+'; Outlook Stable
21 JUL 2017 4:07 PM EST
Fitch Ratings-London-21 July 2017: Fitch Ratings has affirmed Turkey's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB+'. The issue ratings on Turkey's senior unsecured foreign-currency bonds have also been affirmed at 'BB+'. Turkey's Long-Term Local-Currency IDR has been affirmed at 'BBB-' and the issue ratings on Turkey's senior unsecured local-currency bonds have also affirmed at 'BBB-'. The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling has been affirmed at 'BBB-' and the Short-Term Foreign-Currency IDR at 'B'. The Short-Term Local-Currency IDR has been affirmed at 'F3' and the issue ratings on Turkey's senior unsecured short-term local-currency bonds have also been affirmed at 'F3'.
The issue ratings on Turkey's Hazine Mustesarligi Varlik Kiralama Anonim Sirketi's foreign-currency and local-currency global certificates (sukuk) have been affirmed at 'BB+' and 'BBB-', respectively.
KEY RATING DRIVERS
Turkey's IDRs reflect the following key rating drivers:
Turkey's ratings balance high external financing vulnerabilities, pronounced political and geopolitical risks and high levels of inflation and macroeconomic volatility against low public debt ratios backed by a long commitment to fiscal stability and strong growth performance. Structural indicators are generally superior to peers.
Constitutional changes that enhance the power of the presidency were narrowly approved at a referendum in April. The implementation of the full provisions of the new constitution will be completed by new elections, which need to be held by November 2019. In Fitch's opinion, constitutional reform has entrenched a system in which checks and balances have been eroded and has somewhat polarised the country. Fitch expects strengthening the economy to have moved up the government's policy agenda in the realisation that stronger performance will be necessary to bolster political support. Temporary stimulus measures have boosted growth so far in 2017. There has been little progress on structural reform.
Political and geopolitical risks weigh on Turkey's ratings. The purge of the followers of the group that the government considers responsible for the coup attempt in July 2016 continues and a state of emergency remains in place. The pace of the purge has slowed, but its scope continues to unnerve some economic actors. Security incidents have been confined to the unresolved conflict in the south east so far in 2017.
Stimulus measures will weaken fiscal performance in 2017. Fitch forecasts a widening of the general government deficit to 3.1% of GDP, the largest since 2010, but in line with the 'BB' median. Temporary fiscal measures include tax exemptions for consumer durables and an employment scheme under which the government absorbs some costs for new private sector employees. Financial support facilitating a jump in lending backed by the Credit Guarantee Fund (CGF) could also impact the sovereign balance sheet. Continuation of stimulus measures once the recovery becomes entrenched could raise questions over the commitment to fiscal discipline.
The space for countercyclical fiscal policy is underpinned by government debt metrics that are much stronger than peer medians. Debt/GDP in both gross and net terms and debt/revenues are all well below the 'BB' and 'BBB' medians. The rise in debt/GDP in 2016 was due primarily to exchange rate effects, which have subsided, and Fitch expects debt/GDP to remain around the current level of 28.3% over our forecast period to end-2019. Contingent liabilities are rising, but from a low base and are unlikely to have a material impact on government finances over the forecast period.
Economic growth has rebounded and is expected to remain above the peer median. Growth was 5% yoy in 1Q17, with momentum supported by government incentives and an improved external environment; tailwinds that continued into 2Q. Fitch assumes the pace of growth will ease in 2H, as tax incentives and CGF lending may have brought forward demand. Nonetheless, a potentially smoother political environment, early signs of a recovery in the tourism sector and a stronger external environment should support solid performance over the forecast period. Fitch's growth projections, which average 4.3% between 2017 and 2019, compare favourably with the 'BB' median of 3.5%, but are well below Turkey's 2011-2015 average of 7.1%.
The current account deficit is large relative to peers and persistent. Higher commodity prices have caused a renewed widening of the deficit, although exchange rate-induced import compression and an improvement in export conditions will limit the deterioration of the current account deficit in 2017. Ongoing security concerns mean that tourism revenues will be well down on 2013-2015 levels over the forecast period. Financing of current account deficits will keep net external debt on an upward trend. Fitch's end-2017 forecast of 32.1% of GDP compares with a 'BB' median of 19.3%.
External vulnerabilities are a key credit weakness. The gross external financing requirement is very large, at an estimated USD193 billion in 2017, and the international liquidity ratio is 84.4, against a 'BB' median of 151.5, despite some lengthening of external maturities. Turkey's strained international liquidity position makes it vulnerable to shifts in investor sentiment. Evolving domestic and external conditions have raised external financing costs and could further test Turkey's ongoing resilience in external financing. Net international reserves are around one-third of the gross end-December level of USD107.2 billion (5.6 months of CXP), and gross reserves are on a slow but sustained downward path.
Central bank actions, combined with global investor sentiment, have allowed the lira to recover from a sharp fall around the turn of the year. The average funding rate has been increased by 365 basis points so far this year through adjustments to some central bank rates and to the proportion of funding allocated at each rate. The move has been effective, but it reversed a move towards policy simplification that began in 2016. Exchange rate pass-through has pushed inflation into double digits. Fitch's annual average forecast of 10.7% for 2017 would be the highest since 2003. Two-year inflation expectations have been more stable, but at 7.9% compare unfavourably to the CBRT's 5% target. Inflation has persistently overshot targets and is well in excess of peers.
Banks have been hit by the weaker economy and rising financing costs, but are proving resilient. Headline non-performing loans are low and stable at around 3% of total loans. However, the volume of at-risk restructured and watch-list loans has increased. Sector capitalisation, supported by adequate NPL reserve coverage, is sufficient to absorb moderate shocks, but is sensitive to further lira depreciation given the high level of foreign currency loans on banks' balance sheets, and further asset quality weakening as loans season. Credit growth has been temporarily boosted by CGF-backed lending, but at the cost of a squeeze of local currency liquidity. Banks have been active in tapping the international capital markets so far in 2017. Sector foreign currency liquidity is broadly adequate to cover banks' maturing wholesale funding liabilities due within a year, although it could come under pressure in the case of a prolonged market closure.
Turkey is a large and diversified economy with a vibrant private sector. Human Development and Doing Business indicators, as measured by the World Bank, are in excess of the 'BB' median. GDP per capita is double the peer median, though the volatility of economic growth is well in excess of peers reflecting a vulnerability to regular domestic and external shocks.
SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Turkey a score equivalent to a rating of BBB on the Long-Term FC IDR scale.
Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows:
- External finances: -1 notch, to reflect a very high gross external financing requirement and very low international liquidity ratio.
- Structural features: -1 notch, to reflect the ongoing risk of serious terrorist attacks and a political environment that may continue to affect economic policy-making and performance.
Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
RATING SENSITIVITIES
The main factors that, individually, or collectively, could lead to negative rating action are:
- Heightened stresses stemming from external financing vulnerabilities.
- Weaker public finances reflected by a deterioration in the government debt/GDP ratio to a level closer to the peer median.
- A deterioration in the political or security situation.
The main factors that, individually, or collectively, could lead to positive rating action are:
- Implementation of reforms that address structural deficiencies and reduce external vulnerabilities.
- A political and security environment that supports a pronounced improvement in key macroeconomic data.
KEY ASSUMPTIONS
- Economic relations with key trading partners will not deteriorate seriously.
- Fitch forecasts Brent Crude to average USD52.5/b in 2017, USD55/b in 2018 and USD60/b in 2019.
Originally Posted by HISIM
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