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S&P Global Ratings officials said the liquidation of some funds in Türkiye is not expected to pressure the country's credit rating, as long as the process remains isolated.
S&P Global Ratings is expected to publish its second credit rating and outlook assessment for Türkiye this year on Oct. 16.
In its most recent assessment in April, the agency affirmed Türkiye’s credit rating at “BB-/B” and maintained its outlook as “stable.”
Karen Vartapetov, S&P Global Ratings’ director and lead sovereign analyst for Central and Eastern Europe and the Commonwealth of Independent States, and Financial Institutions Director Regina Argenio declined to comment on the upcoming rating decision.
But they answered Anadolu Agency’s questions on the possible impact of the ongoing fund investigation on Türkiye’s credit rating and economic outlook.
Vartapetov said the regulations and policy response put forward by authorities as part of the fund investigation were “swift and convincing.”
“They managed to contain it, and it did not have a broader negative impact on the financial system,” he said.
Vartapetov said there was not much evidence showing that the process had negatively affected confidence or perceptions toward the Turkish economy.
“In terms of macroeconomic effects and consequences, we have not yet seen much development,” he said. “So far, it seems to be a fairly isolated situation.”
He said there had not been much reaction in areas S&P monitors in Türkiye, including the exchange rate, dollarization and financial liquidity in the finance and banking sector.
“There may be questions about the quality of governance, the rule of law and the effectiveness of policymaking,” Vartapetov said. “But I think we are quite conservative when assessing this part of Türkiye’s credit profile. This is already part of our rating structure.”
He said the developments related to the funds would not create downward pressure on the credit rating if they remained isolated.
“If the fund crisis remains isolated and households continue to have confidence in assets denominated in the local currency, I think the negative effects will be limited,” he said.
Vartapetov said Türkiye's rating is set by committee, and any developments involving the funds would be discussed there.
He said S&P would probably highlight the process as a risk, but added that the agency had not yet seen clear evidence that it would have significant macroeconomic effects.
Vartapetov said that if the process “remains limited to a narrow asset class,” he does not think it will have a “game-changing” effect on investor sentiment.
Vartapetov also shared assessments on Türkiye’s growth, inflation outlook and international reserves.
He said S&P forecasts average inflation in Türkiye at around 30% this year and expects economic growth to be close to 3%.
Vartapetov said reserve adequacy is one of the most important parameters for the credit rating.
“Türkiye started this year from a very high level; reserves were at record levels,” he said. “The Central Bank used part of the reserves to contain the negative effects caused by the rise in energy prices, but then replaced some of that.”
He said gross reserves remain slightly below their January-February levels, but that their recovery since then supports the credit rating.
Vartapetov noted that net reserves were not as high as gross reserves but had recovered.
He said household behavior remained another key factor for Türkiye’s sovereign rating.
“Will households still prefer the lira or lira-denominated assets and bank deposits, or will they turn to the dollar and create pressure on foreign exchange reserves?” he said. “This has been a key variable so far.”
Despite geopolitical developments in the Middle East, high energy prices and the fund-related process, households’ stance toward the lira has remained strong, he said.
“We have not seen much sign of a renewed rise in dollarization,” Vartapetov said. “Dollarization in the financial system has not increased.”
S&P Global Ratings Financial Institutions Director Regina Argenio said the fund process had hit the stock market hardest, with equity valuations falling.
“However, beyond the initial correction, we saw the valuation stabilize,” she said.
Argenio said data may not yet fully reflect the picture because it arrives with some delay, but added that S&P had not seen a major movement in bank liquidity.
She said it was important for the process to remain isolated to the relevant funds, adding that the policy response so far had been “quite strong.”
Argenio said that beyond judicial processes, liquidity had been provided to the market and banks had been appointed to liquidate the funds.
Separately, the Turkish Directorate of Communications issued a statement on the second meeting of the Fund Coordination Board, chaired by Vice President Cevdet Yilmaz.
The meeting evaluated work by relevant institutions on the calculation method for the net investment amount under the Capital Markets Board’s Sept. 30 decisions, as well as secondary regulations and the payment schedule regarding the board’s payment decision on fund accounts.
The statement said work also continued on a long-prepared draft amendment to the Capital Markets Law, and that relevant institutions were instructed to finalize it.
“In all regulations discussed, the understanding that no additional burden should be imposed on our citizens was emphasized,” the statement said.
The Directorate of Communications said necessary work would continue “swiftly and effectively” with relevant institutions under capital market rules, while observing fairness and justice, to resolve the problem that emerged in a “specific and limited” part of the fund market.
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