UAE, GCC banks’ Turkish subsidiaries to benefit from macroeconomic shift

UAE, GCC banks’ Turkish subsidiaries to benefit from macroeconomic shift

Cars wait in traffic on the Bosphorus Bridge in Istanbul. — File photo

Published: Sun 7 Apr 2024, 5:20 PM

The UAE and other Gulf banks with Turkish subsidiaries should benefit from Turkiye’s macroeconomic adjustment and its shift to more conventional and consistent economic policies, Fitch Ratings said.

The rating agency upgraded Turkey’s sovereign rating to ‘B+’ Positive from ‘B’ Stable on the back of increased confidence in the durability and effectiveness of the policies implemented since June 2023. The positive outlook of Turkiye reflected Fitch’s expectation that the country’s overall macroeconomic policy stance would be consistent with a significant decline in inflation, as well as a continued reduction in external vulnerabilities.

Due to strong growth prospects, it upgraded 18 Turkish banks in March alone, including many GCC-owned subsidiaries.

“Disinflation should reduce the subsidiaries’ net monetary losses, and slower Turkish lira depreciation should reduce the adverse capital impact from currency translation losses,” Fitch said.

The Turkish subsidiaries of GCC banks’ net monetary losses were $2.6 billion in 2023 as compared to $.9 billion in 2022, with Turkish inflation averaging 53 per cent over the year.

“This eroded the banks’ operating profit/risk-weighted assets ratios by 50bp. Emirates NBD (ENBD) and Qatar National Bank (QNB) were the worst-affected, with