The fund crisis and developments in financial markets, which have become one of the important topics on the agenda in Turkey in recent weeks, have also entered the radar of international credit rating agencies.
While Moody's stated that the credit risk of the fund crisis in Turkey is limited for the financial system, it pointed out that the process revealed some gaps in the surveillance and audit mechanisms. Fitch, on the other hand, evaluated the outlook of the Turkish banking sector in the "deteriorated" category and pointed out the pressures created by increasing non-performing loans, the weakening of capital buffers and the high interest rate environment.
Economist Mahmut Aydoğmuş stated that the assessments of the two institutions point to different risk areas and said, "It would not be right to evaluate these as if they were the same risk. However, it is important that the two draw attention to different points of Turkey's financial system in the same period."
MOODY'S: CREDIT RISK IS LIMITED, BUT THERE ARE CONTROL GAPS
Moody's Ratings described the credit risk created by the fund crisis in Turkey as limited in its assessment titled "Credit risk limited from Turkey's 'Fund Run' crisis but episode flags some oversight gaps" published on October 2.
The organization also stated that the current process points to some gaps in the surveillance and control mechanisms.
Drawing attention to two different points in Moody's assessment, Aydoğmuş said, "Moody's, on the one hand, says that it does not expect the funding crisis to directly turn into a major credit crisis for the financial system. This is the positive side."
However, Aydoğmuş stated that the organization's warning regarding its control mechanisms should be given more importance and said, "However, it immediately gives a very important warning: What happened shows that there are some gaps in surveillance and control. I think this is the statement that should be emphasized."
THE PROBLEM IS NOT JUST THE MONEY OF 455 THOUSAND INVESTORS
Stating that it would be incomplete to evaluate the fund crisis only in terms of liquidated funds and investors who have money in these funds, Aydoğmuş pointed out that the fund market has grown rapidly in recent years.
"The fund market in Turkey has grown very rapidly in recent years. Hundreds of thousands of investors have entrusted their savings to this system. Therefore, the issue we are talking about here is not only what happened to certain funds," said Aydoğmuş, adding that the real issue is whether surveillance and audit mechanisms have developed at the same pace in parallel with the growth of the financial structure.
Aydoğmuş pointed out the importance of Moody's use of the expression "oversight gaps", that is, surveillance and control gaps, and said, "An international credit rating agency is actually giving us a warning about the system itself."
WARNING FROM FITCH TO THE BANKING SECTOR
Another remarkable assessment regarding Turkey was made by Fitch Ratings.
In Fitch's assessment of developing country banks, the outlook for the Turkish banking sector was included in the "deteriorating" category.
In Fitch's latest assessments of the Turkish banking sector, the pressure of the high interest rate environment on banks' profitability, increasing problem loans in consumer loans and SME loans, and the weakening of banks' capital buffers were among the prominent risks.
Aydoğmuş emphasized that Fitch's assessment is not related to Turkey's country credit rating and said, "Fitch has not lowered Turkey's country credit rating or country credit rating outlook. What is in question here is the sector outlook for the Turkish banking sector."
"Therefore, it would not be technically correct to read it as 'Fitch lowered Turkey's outlook'," said Aydoğmuş, adding that, on the other hand, evaluating the banking sector's outlook as "deteriorating" cannot be taken lightly.
'CRACKS IN BANKS ARE UNDER THE SURFACE'
The title "Cracks Beneath the Surface: Rising NPLs and Thinning Capital Buffers" was used in the banking section of Fitch's Türkiye meeting held in Istanbul on September 30.
Drawing attention to the statement meaning "cracks under the surface: Increasing non-performing loans and thinning capital buffers", Aydoğmuş said that Fitch's evaluations should be considered together with the effects of high interest and disinflation policy on the banking system.
Aydoğmuş said, "When you keep interest rates in an economy for a long time, you will not only see this reflected in loan interest rates. The financing costs of companies increase, the debt payment capacity of households is strained, and problems begin to arise in loan repayments."
Stating that it is important for Fitch to draw attention to the asset quality and capital buffers in individual and SME loans, Aydoğmuş said, "This is why it is important for Fitch to draw attention to the asset quality and capital buffers especially in individual and SME loans."
'TWO ORGANIZATIONS INDICATE TWO SEPARATE RISKS'
Stating that Moody's and Fitch's evaluations should be read together, Aydoğmuş emphasized the different risk areas of the two organizations.
"Moody's gives us a warning on the surveillance and supervision side of the fund market. Fitch, on the other hand, draws attention to another risk area in the banking sector through high interest rates, increasing non-performing loans and capital buffers," said Aydoğmuş and continued his words as follows:
“So one looks at the supervision of capital markets, the other looks at the balance sheet dynamics of the banking system.
It would not be right to evaluate these as if they were the same risk. But it is important that the two draw attention to different points of Turkey's financial system in the same period.”
'THE MOST IMPORTANT CAPITAL OF THE FINANCIAL SYSTEM IS TRUST'
Stating that the main issue for Türkiye is not only the capital adequacy of banks or the size of funds, Aydoğmuş drew attention to the importance of trust in the financial system.
"The financial system is not just about numbers. The invisible but perhaps the most important capital of this system is trust," said Aydoğmuş, adding that citizens want to trust the rules and control mechanisms of the system when transferring their savings to banks or investment funds.
Aydoğmuş said, "If you want to attract hundreds of billions or even trillions of liras of savings into the financial system in a country, you must first guarantee the following to that saver: The rules will be clear. The supervision will be strong. The system will work before the problem occurs, not before it occurs."
'PRECAUTIONS SHOULD BE TAKEN BEFORE THE YELLOW LIGHT TURNS TO RED'
Aydoğmuş stated that it is important that Moody's sees the credit risk in the fund crisis as limited, and that Fitch's assessment does not mean that there will be a crisis in the Turkish banking system in the near future.
However, Aydoğmuş stated that it should be taken into consideration that two organizations issued warnings about different points of the financial system in the same period and said, "But if international organizations give us yellow lights from two different places in the same period, what needs to be done is to take precautions before that light turns red."
Aydoğmuş concluded his words with the following words: "Because the cost of crises in financial markets begins not after they occur, but when trust is lost."
