Gulf Cooperation Council (GCC) banks with existing investments in Turkey could face a renewed wave of financial losses throughout 2024, according to a recent Fitch Ratings report. The credit rating agency highlighted the ongoing depreciation of the Turkish Lira as a key factor contributing to these potential losses.
Fitch's concerns stem from their analysis of the financial performance of GCC banks in 2022 and 2023. The report acknowledges the significant losses these banks incurred during that period due to the economic turmoil in Turkey. While some gains were achieved through CPI-linked bonds, they were not enough to offset the overall financial strain. Fitch attributes this situation primarily to the depreciation of the Turkish Lira, which has significantly eroded the value of GCC banks' Turkish assets.
The report further warns that these currency losses are likely to persist through at least 2024. Fitch analysts believe that the Turkish Lira will continue to weaken, putting further pressure on the financial health of GCC banks with Turkish exposure. This ongoing depreciation stems from a complex interplay of factors within the Turkish economy, which Fitch does not elaborate on in detail within the report.
While the outlook for 2024 appears challenging, Fitch does acknowledge some mitigating factors. The report emphasizes that the exposures of GCC banks to the Turkish market have been declining over time, a consequence of the Lira's depreciation. This decline in exposure helps to limit the potential for further losses. Additionally, Fitch expresses confidence in the loss-absorption capacity of these GCC banks. The report highlights the banks' strong financial standing, suggesting they have the resources to weather the current economic storm in Turkey.
Furthermore, Fitch underscores that the credit ratings assigned to these GCC banks already take into account the risks associated with their Turkish subsidiaries. The implication is that while further losses are anticipated, they are unlikely to be severe enough to warrant a downgrade in the banks' overall creditworthiness.
Fitch's report serves as a cautionary tale for GCC banks with ties to the Turkish market. The year 2024 appears likely to bring renewed financial challenges, and these banks will need to navigate the ongoing economic instability in Turkey with careful attention to risk management.