Operating Environment Key To Turkish Islamic Banks Outlook

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The rating agency said that further deterioration in the operating environment would be negative for standalone credit profiles and could lead to downgrades of viability ratings.

Fitch Ratings said that the market share of Turkey's Islamic banks has remained broadly stable and growth is expected to remain subdued in the short term due to the weaker growth outlook, the high interest-rate environment and asset-quality pressures. 

Participation banks' non-performing financing (NPF) ratio was 3.8 per cent in Q3 2018, above conventional banks' 3.2 per cent.

In a statement, Fitch said that credit risk remains high due to SME exposure, significant financial controller financing and exposure to varying degrees and too risky sectors such as construction.

Capitalisation in Islamic lenders is said to be moderate but capital ratios are sensitive to Turkish lira depreciation and further non-performing financing (NPF) growth.

However, the Islamic banking segment continues to offer reasonable medium-term growth prospects considering the strategic importance of participation banking to the Turkish authorities, its current low base as well as the recent establishment of two new state-owned banks and also of a centralised Shari’ah board, to facilitate product growth.