While Turkey’s credit rating was once among the first to be reduced in a global or regional crisis, it was among the few countries with a “positive” outlook during the recent global financial crisis, analysts the Anatolia news agency spoke with noted. According to a study by ING Bank, Turkey’s economic potential and its strength in the face of the financial crisis were underestimated and its credit default swap spreads (CDS) overvalued. The study predicts international rating agency Standard & Poor’s (S&P) will raise its outlook on Turkey to positive from stable in the next few weeks. ING also stresses that Moody’s might upgrade Turkey’s rating in the first half of next year as well.
Following the start of a high economic growth phase in the banking sector, Turkey’s credit rating is predicted to be increased by one grade to BBB in the next one to two years, qualifying the country as a safe place to make investments in. The rise in credit rating to BBB will provide the Treasury and private sector with an opportunity to borrow from international markets at lower costs and for longer terms.
BBB is the lowest investment-grade rating given by both S&P and Fitch; Moody’s uses the rating Baa, which is similar. Turkey’s current ratings are at the higher end of the speculative or junk grade, which indicates that the international ratings agencies feel there is a higher risk of default.
Recently international credit rating agency Fitch upgraded Turkey’s long-term foreign currency Issuer Default Rating (IDR) by two notches, to BB+ from BB-; the long-term local currency IDR to BB+ from BB; and its country ceiling to BBB- from BB. It also reaffirmed Turkey’s short-term foreign currency IDR at B.
Credit rating is seen as an indication of the likelihood and ability of a borrower to pay a debt and its interest back at a specified time. Credit ratings are calculated from financial history dating back 15 to 20 years. When calculating the credit ratings of countries, economic and political risk factors taken into account. Foreign currency cash flow, debt ratio, expansion of exports, balance of payments, the current account balance, the ratio of short-term capital flow to reserves, growth rate, total savings, public debt, investments and inflation are among the economic risk factors considered. As political risk factors, the electoral system and election dates, developments in foreign policy, the workings of democracy, political parties, relations between the government and opposition parties, risks in the political field and the degree of independence of the country’s central bank are taken into account.
Credit ratings range from C or D to AAA, the highest credit quality denoting the lowest expectation of credit risk. BBB indicates a low expectation of credit risk. Turkey’s credit rating is Ba3 in Moody’s, BB- in S&P and BB+ in Fitch’s ratings.
