In a report on the Turkish banking system Bank Industry Risk Analysis: Turkey (Republic of) Standard & Poor’s Ratings Services notes that the Turkish banking sector has a very high risk profile, which is the product of the country’s fragile economic and financial environment. Most of the factors behind the ratings on the
“In addition, banks face the challenge of improving their poor asset quality and capitalisation, diversifying revenues, and reducing the high-risk practice of intra-group lending,” adds Volland.
While the surviving banks still have a chance to improve, any further systemic shocks could have dire consequences on the sector. Apart from the economic environment, profitability and capitalization will drive the credit quality of Turkish banks in 2003 and beyond.