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      Scope takes no action on Türkiye
      FRIDAY, 17/02/2023 - Scope Ratings GmbH
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      Scope takes no action on Türkiye

      Monitoring review announcement.

      Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

      Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

      Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

      Scope completed the monitoring review for the Republic of Türkiye (B-/Negative (long-term foreign-currency issuer and senior unsecured debt ratings), B/Negative (long-term local-currency issuer and senior unsecured debt ratings), S-4/Stable (short-term issuer ratings in foreign- and local-currency)) on 14 February 2023.

      This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

      Key rating factors

      Türkiye’s long-term sovereign ratings are challenged by: i) severe external-sector vulnerabilities, including structural current-account deficits, significant exposure to exchange-rate risk, capital outflows and an inadequate level of net international reserves; and ii) central bank and economic policies that are inconsistent with the Turkish economy’s long-run sustainability.

      In Scope’s view, Türkiye’s unconventional and increasingly interventionist policy mix has raised risk to external and public finances, while failing to restore currency stability or sustainably rebuild foreign-exchange buffers. Evolving vulnerabilities, including structurally loose monetary policy despite high inflation, negative net foreign assets of the central bank, elevated private and public foreign-currency exposure and tightening sovereign-banking nexus are downside risks to the ratings.

      The economic challenges will likely interact over a forthcoming period with institutional challenges in the context of the upcoming presidential and parliamentary elections, with elevated uncertainty regarding policy choices post-elections. The risk of heightened domestic political tensions and exposure to geopolitical risks further challenge the credit outlook.

      Concurrently, Türkiye’s ratings are supported by strengths underlying the sovereign’s credit profile, reflecting: i) comparatively moderate levels of government debt; ii) a sound banking system able to supply liquidity to the sovereign; and iii) a large, diversified economy with comparatively strong medium-run growth potential.

      We expect that the February earthquakes will have an adverse impact on growth and inflation in 2023 given production disruptions and supply shortages in the affected regions which generate around 10% of Turkish GDP, with a substantial on-off fiscal cost to the budget.

      The Negative Outlook represents Scope’s view that risks to the sovereign ratings are tilted to the downside over the next 12 to 18 months.

      The foreign- and/or local-currency rating(s) could be downgraded if, individually or collectively: i) macroeconomic stability is further undermined due to further deterioration in external accounts, more severe balance-of-payment pressures and/or a curtailed financial strength of the banking system; ii) the predictability of public policies further declines, exacerbating macroeconomic imbalances; and/or iii) severe domestic political pressure and/or an acute deterioration in security conditions and international relations accentuate market turbulence and external risk.

      Conversely, the rating Outlook(s) could be revised to Stable if, individually or collectively: i) the country’s external vulnerabilities are reduced, due, for example, to a sustained improvement in net international reserves, improved capital inflows and a narrowing of structural current-account deficits; and/or ii) the predictability of public policies and the effectiveness of monetary policy are enhanced, supporting a rebalancing of the economy and sustainably reducing inflation.

      For the updated scorecards accompanying this review, click here.

      The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
      Lead analyst: Levon Kameryan, Associate Director.

      © 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH, Scope ESG Analysis GmbH and Scope Hamburg GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin. 

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