Moody's Investors Service has downgraded the ratings of 13 banks in Turkey following its September 11 unscheduled cutting of Turkey's sovereign rating to B2 with a negative outlook from B1 with negative outlook, the ratings agency said on September 15.

The downgrading of the sovereign rating resulted in the lowering of ceilings for foreign currency deposits to Caa1 from B3 and for foreign currency bonds to B2 from B1.

All long-term deposit, senior and issuer ratings have a negative outlook, in line with the negative outlook on the sovereign rating.

The outlook reflects the downside risks associated with the Turkish authorities' inadequate reaction function, which makes Turkey more likely to suffer a balance of payments crisis, which might lead to capital controls and restrictions on foreign currency outflows, Moody’s said.

Moody's has maintained the Very Weak + Macro Profile (Scale: from Very Strong + to Very Weak -) it assigns to Turkish banks, reflecting its unchanged view on the operating environment for banks.

Despite a challenging economic environment and funding market conditions for Turkish banks, Moody's noted that the lenders’ reliance on short-term wholesale foreign funding has reduced moderately ($44bn at end-June 2020, from $64bn available at end-April 2019) while foreign currency liquidity has been maintained at broadly similar levels ($90bn at end-June 2020).

As a result of this, Moody's reduced the negative adjustment it applies for Funding Conditions and maintained the Very Weak + Macro Profile.

Moody's also noted that Turkish banks have continued to maintain access to the syndicated loans market throughout the coronavirus (COVID-19) pandemic.