The country’s banks have coped well during the pandemic, but big challenges still lie ahead. Burhan Khadbai reports.

Turkey’s economy expanded by 11% in 2021, after being one of the few countries to expand in 2020, with growth of 1.8%. But, in parallel, inflation has been rocketing in Turkey. Banks have been on a rocky road as a result, but have managed to cope well despite it. Restructuring of loans, forbearance measures in loans classifications and write-offs, for example, have kept non-performing loan (NPL) ratios at relatively low levels.

Turkiye Is Bankasi (Isbank) is this year’s best-performing Turkish bank out of the country’s six biggest lenders, with a score of 5.09. The bank has surged to the top after being ranked fifth last year, thanks to it topping the table in the growth, profitability, return on risk, soundness and leverage metrics.

Isbank saw exceptional growth in 2021, with total assets rising from TL593.9bn ($34.3bn) to TL926.5bn, loans up from TL345.2bn to TL493.4bn and deposits up from TL368.9bn to TL595.6bn year-on-year.

Akbank sits in second place with a score of 4.84, up from third place last year, with the bank taking first spot in operational efficiency. Yapi Kredit Bankasi takes third place with a score of 4.75, up from fourth last year. TC Ziraat Bankasi drops two places to fourth with a score of 3.88. The lender’s fall can be explained by a drop in its position in operational efficiency from second to fifth and from third to fifth in asset quality. However, the bank has improved its position in liquidity, moving from third to first. Turkiye Halk Bankasi is in fifth spot with a score of 3.77, with Turkiye Vakiflar Bankasi rounding off the top six ranking with a score of 3.75.

There are no changes to Turkey’s top six ranking by Tier 1 capital; however, every bank has seen a drop in their Tier 1 capital, mainly due to the fall in the lira – it lost 44% of its value in 2021 alone. TC Ziraat Bankasi, Turkey’s largest bank by Tier 1 capital, saw the biggest drop, from $14.58bn to $9.66bn, with the bank dropping from 118th to 177th in the Top 1000 World Banks ranking.

Turkey’s economy and banking sector faces a challenging period, with high inflation and the rising balance of payment risks. The war in Ukraine is increasing those risks, with commodity prices rising and trade with Russia and Ukraine being affected. The economy is therefore expected to slowdown in 2022.

Meanwhile, NPLs are expected to rise for Turkish banks, with Fitch predicting them to reach above 9% of total loans by 2023. Fitch also expects the cost of risk to rise from 260 basis points (bps) in 2021 to more than 320bps in 2023.

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