Loading…
- Disinflation program, broader economic outlook appear better than expected at onset of Middle East war, while situation remains ‘manageable,’ says S&P Global financial director
By Emirhan Yilmaz and Emir Yildirim
ISTANBUL (AA) — The Turkish banking system is facing a series of global and regional economic shocks but the economic administration’s disinflation process and the economic outlook appear “better than anticipated,” with an S&P Global Ratings financial director describing the situation as “manageable.”
S&P Global gathered leading representatives, firms, and financial institutions at the Türkiye Capital Markets Conference 2026 in Istanbul on Thursday.
Regina Argenio, director of financial institutions at S&P Global, told Anadolu that the risks Türkiye’s banking system is facing are “meaningful.”
“But because of the progress that we are seeing in terms of disinflation, and because the economy is ending up better than what we were anticipating at the beginning of the war in (the) Middle East, we do think that the situation is manageable," she said.
Argenio noted that S&P Global is monitoring the ability of Turkish banks to continue successfully rolling over their substantial external debt, warning that any disruptions on this front could prove problematic, while emphasizing that the removal of all regulatory deferral measures implemented over the past year has been a positive step ensuring stability.
She stated that increasing credit volume is a difficult process given the high real interest rates that banks are dealing with now, which have led to a decline in lending.
“It could be better next year if the rates are cut, and we see this transmission into the pricing, to the loans, we might see positive development there,” she said.
“And it's more difficult for the SMEs and the retail customer to afford such extremely high level of cost of financing, and that's where we see the bucket of potential risk coming from the banking sector, in terms of asset quality deterioration going forward,” she added.
Argenio noted that net interest margins are expected to improve next year and that lower rates would result in better funding costs for the Turkish lira-denominated banking sector.
She mentioned that funding costs in foreign currencies could increase due to interest rate dynamics, while the outcome will depend on the timing and pace of rate cuts, as well as the result of the disinflation program.
“Going forward, if the country is able to sustainably reduce inflation and increase confidence into the economy and therefore produce a stronger economic growth, more resilient, more stable economic environment -- in terms of foreign exchange risk -- that could be a meaningful improvement in terms of asset quality for the banking sector, particularly if you look at the real profitability. Because nominal-wise, you might see some decline. But, in real terms, if things goes in the right direction, we could see better profitability. So, the return on the capital should improve in (the) real term,” she said.
Argenio stated that the impact of the recent fund probes in Türkiye would remain limited if it were an isolated issue, but the policy response has been strong so far.
She noted that the liquidity provided to the banking sector helped contain the impact, adding that “it’s early to say” what the impact will be on the cost of external borrowing.
“There could also be a small component of higher cost of risk that the Turkish borrower will have to pay going forward — it depends on how much contained and how quickly the situation is managed internally,” she added.
Emirhan Yılmaz
