Fast Market Research recommends "Turkey Commercial Banking Report Q3 2012" from Business Monitor International, now available

Boston, MA -- (SBWire) -- 09/04/2012 --BMI View: The broad-based improvement in global risk sentiment witnessed since the start of 2012 has prompted us to revise our end-year Turkish banking sector asset and loan growth forecasts up to 10.0% and 12.0% respectively, from 6.0% and 8.0% previously. Nonetheless, a combination of latent external risks, a slowing domestic economy, rising non-performing loans and tighter monetary policy will see domestic banks come under pressure this year. While the financial sector's relatively strong capital and leverage ratios will provide a buffer to these headwinds, we remain cautious towards financial stocks over a medium-term horizon. At the end of 2011, we highlighted the prospect of an external shock as the greatest threat to Turkey's economic stability in light of the country's reliance on foreign capital inflows. However, there has been a significant boost to global liquidity and risk sentiment witnessed since the start of 2012, alongside a stabilisation of macroeconomic conditions in the eurozone and a tentative improvement in US growth. In light of the improved external environment, we have been prompted to revise up our Turkish banking sector growth forecasts, with asset and loan growth now expected to clock in at 10% and 12% by the end of 2012, up from 6.0% and 8.0% previously. This nonetheless represents a sharp slowdown in growth from previous years. Indeed, the most recent data released by the Turkish central bank (CBRT) show loan growth of 32.4% y-o-y at the end of 2011, Turkey Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 32 down on the 42.5% growth recorded at the end of 2010, but still well above the central bank's 25.0% target. Below we highlight the major headwinds facing the banking sector. Need For Tighter Monetary Policy: As we stressed last quarter, despite the Turkish central bank's (CBRT) continued unorthodox monetary policy stance, currency and inflationary pressures would preclude the bank from overly loosening monetary policy for the foreseeable future. This was evident in the CBRT's decision on March 22 to pursue further lira liquidity tightening measures by not holding its regular one-week repo auction at 5.75%. While policy had originally been loosened back in January in line with easing measures by other central banks, the Turkish central bank has adopted an increasingly hawkish tone in recent weeks. In line with this dynamic, interbank funding costs have been rising (see our online service, March 26, 'Sustained Tightening Needed For Stability), which place renewed pressure on banks' domestic operations. Slowing Economy, Rising NPLs: Credit growth has already begun to show signs of slowing, and a combination of depressed economic activity abroad and tighter monetary and fiscal policy at home will result in a pronounced slowdown in real GDP growth this year (we currently target growth of 1.8% down from 8.0% in 2011). In turn, this will lead to an inevitable decline in asset quality. Accordin

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