Moody's Downgrades Turkey's Rating to 'B2', Maintains Negative Outlook

Moody's downgraded on Friday the Turkish government ratings for unsecured debt to B2 from B1 and downgraded its top unsecured debt rating to (P) B2 from (P) B1, while maintaing the negative outlook.

The rating agency has also downgraded the senior unsecured backed debt rating of Turkey's Under-secretariat of Treasury Asset Leasing Company Hazine Mustesarligi Varlik Kiralama to B2 from B1, while also maintaining a negative outlook.

According to Moody's; here are the three main drivers for the downgrade:

1. Turkey's external vulnerabilities are increasingly likely to crystallise in a balance of payments crisis.

2. As the risks to Turkey's credit profile increase, the country's institutions appear to be unwilling or unable to effectively address these challenges.

3. Turkey's fiscal buffers "self-insurance", which have been a source of credit strength for many years, are eroding.

Maintaining the negative outlook reflects the view that financial metrics could degrade faster than currently anticipated in the coming years.

It also reflects the downside risks associated with the authorities' insufficient reaction function, making Turkey more likely to suffer from a full-blown balance of payments crisis.

Finally, it reflects elevated levels of geopolitical risk on several fronts - the relationship with the United States, the European Union (EU), and tensions in the Eastern Mediterranean - that could accelerate.

Moody's also lowered the long-term ceilings for Turkey, including the ceiling for foreign currency bonds to B2 from B1; The ceiling of foreign currency deposits to Caa1 from B3; Bond ceilings and deposits in local currency to Ba3 from Ba2. The ceiling for short-term bonds in foreign currencies and short-term deposits in foreign currencies remained unchanged at Not Prime (NP).

Ceilings generally function as the maximum rating that can be assigned to a local issuer in Turkey, including structured securities backed by receivables.

Moody's view from a credit perspective reflects that the alignment of the foreign currency bond ceiling and government bond ratings are exposed to a common threat.

Also, the loss of external confidence and capital means that the fortunes of public and private sector entities in Turkey are increasingly interlaced.