Earthquake report for Turkish banks from Fitch

Fitch Ratings evaluated Turkish banks in its report. In the report published by Fitch, it was noted that due to the earthquakes in February, banks’ bad loans will increase, but most banks have limited risk in the worst-affected regions and given the currently low rating levels, it is unlikely that banks’ ratings will be further affected.

The impact of the disaster will become more visible after the end of the regulatory loan deferral period, which lasts up to six months, depending on the bank, type of borrower and location, the report said.

The financial cost of the disaster may reach $100 billion

In the report, which referred to a pioneering assessment published by the Office of the Turkish Strategy and Budget Presidency, it was stated that the financial cost of the disaster, which caused the death of tens of thousands of people and the displacement of more than 3 million people, could reach 100 billion dollars. This figure corresponds to 10.6 percent of Turkey’s GDP projected for 2023.

Fitch expects continued effects to suppress near-term economic growth in the first quarter of the year before recovery begins in the third quarter of 2023 as government spending programs take effect and large-scale restructuring begins.

Stating that the risks of the banks in the affected regions were analyzed to assess the possible direct effects of the earthquake on the banking sector, Fitch Ratings said that these regions are estimated to constitute approximately 9 percent (700 billion TL or 37 billion dollars) of the overall credit risk of the banking sector at the end of 2022, but the three most severely affected It was stated that the provinces of Hatay, Adıyaman and Kahramanmaraş constitute approximately 2.4 percent.

Regional banks will be more affected

In the report, it was underlined that the effects on the banking sector appear limited for this reason, but that the effects on regional banks, which have more risk in the region, may be higher.

About three-quarters of loans in the region are given to non-retail customers, the report said, with the majority of them in the least affected areas, with very little business activity in the worst-affected areas.

However, it was pointed out that this situation, where some businesses may be severely interrupted, may also cause some credit declines.

The NPL ratio of the sector is 2 percent at the end of January 2023.

It was emphasized that approximately 5 percent of the total risk in the affected regions was due to mortgage loans, in line with the national rate, and this was equal to less than 0.5 percent of the total credit risk of the banking sector. In the report, it was stated that the NPL ratio of the sector was 2 percent at the end of January 2023.

Fitch noted that banks mandate that mortgaged properties be covered by earthquake insurance as a condition of the mortgage loan, which should cover part of the coverage in most cases where properties are destroyed, but only up to an insurance payout limit.

In the report, it was stated that the asset quality of banks will deteriorate with the wider economic repercussions of the earthquakes.

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