Fitch raises Turkey to investment grade status

Fitch Ratings has upgraded Turkey’s rating from junk status to investment grade, based on the view the economy is on track for a soft landing.

The ratings agency raised the country’s foreign currency issuer default rating to BBB-, up from BB, as well as its long term local currency issuer default rating to BBB, from BB+.

Fitch said the easing in near-term macro financial risks prompted the upgrade, along with the underlying credit strengths, including a moderate and declining government debt burden, a sound banking system and favourable medium-term growth prospects.

The agency, which said the Turkish economy is on course to return to a sustainable growth rate, forecasts GDP growth of 3% in 2012, 3.8% in 2013 and 4.5% in 2014.

It added that achieving this rebalancing without experiencing a recession, helped by strong trade and low levels of unemployment, signals an enhanced economic resilience and flexibility.

Fitch said: ‘Turkey's sound banking system underpins the rating. It has a capital adequacy ratio of 16.3%, is moderate in size and has a low non-performing loan ratio of 2.8%.

However, it added credit growth has been rapid in recent years, raising the loan/deposit ratio to above 100%.

Fitch said Turkey also has a track record of volatile inflation and GDP growth, reflecting its low savings rate and dependence on external financing.

Turkey has been gaining traction among fund managers on its approving fundamentals. Last month Jupiter fund manager Elena Shaftan outlined why she was backing the country in her Emerging European Opportunities fund.