Turkish Lira: Bank stress heightens TRY vulnerability – Commerzbank

Tatha Ghose at Commerzbank flags Fitch’s latest review of Turkish banks as another negative signal for the Lira. Profitability has weakened after regulatory changes on FX risk-weighted assets, with capital ratios lower and margins squeezed by prior rate cuts and high costs. Rising NPLs, renewed growth in FX deposits and conflict-driven inflation pressures are seen increasing exchange-rate risk.

Fitch warnings weigh on Turkish Lira

"Fitch’s latest assessment of Turkish banks adds another warning signal to the lira backdrop. The agency noted that profitability weakened in Q1, partly because of removal of regulatory waivers on FX risk-weighted assets."

"Once this was withdrawn, it weighed down on earnings and capital ratios (equity Tier 1 ratio fell to 11.5% from 14.1%)."

"Lower securities yields, squeeze in lending margins after the Q4 2025 rate cuts, and still-elevated trading losses and operating costs also kept pressure on operating profit. "

"NPL ratio rose to 3.3% at end-Q1 from 3.1% at end-Q4 2025. Fitch expects conditions to remain difficult, with higher lira interest rates and inflationary pressure from the Iran conflict likely squeezing net interest margins further in Q2 via higher funding cost."

"Another uncomfortable detail was the renewed rise in FX deposits, to 38.1% of total deposits from 35.2%, which indicates how quickly confidence can shift when external conditions deteriorate. Signs of financial stress further increase risk for the exchange rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)