Bloomberg

Istanbul

Turkey remains vulnerable to swings on global markets even after narrowing its current-account deficit, Standard & Poor’s said as it kept the country’s rating outlook negative.

The country’s “vulnerability to changes in international sentiment” is highlighted by growing foreign-currency debts held by businesses, S&P said in a report published on Friday. Turkey’s companies have a “short” foreign-currency position of more than $100bn, and its banks have more than doubled their external debt since the end of 2010, it said.

S&P kept Turkey’s rating at BB+, the highest junk status, with a negative outlook signalling there’s at least a one-in-three chance of a rating cut within a year. It’s the only one of the three main credit-rating companies that doesn’t classify Turkish debt as investment grade.

Turkey’s current-account gap will shrink to 5.2% of economic output this year from almost twice that in 2011, and rebalancing of the economy, which imports most of its energy needs, will be helped by falling oil prices, S&P said.

Threats include a shift in global markets, the wars on Turkey’s borders, and domestic polarisation that may deepen if unemployment rises, S&P said.

While the financial system currently has few bad loans, a slowdown would test the creditworthiness of companies that borrowed in the boom, S&P said. It may expose state banks that engaged in “quasi-fiscal activity that may not satisfy commercial lending standards,” it said.

 

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