ISTANBUL (Reuters) - Standard and Poor's said on Friday it had affirmed Turkey's sovereign ratings with a stable outlook, adding that the ratings could be lowered if it sees an increased likelihood of a systemic distress in the banking system.
"We expect the Turkish economy to contract by 0.5 percent this year, although there are major uncertainties surrounding this forecast", S&P said, adding that the ratings could be lowered if growth weakens beyond its projections.
"Even though financial market sentiment has improved and the lira has regained some ground since (August), we still expect the consequences will weigh on Turkey's economic prospects in the near to medium term".
S&P had downgraded Turkey's unsolicited long-term foreign currency sovereign credit rating to B+ in August, following a sharp decline in the value of the Turkish lira. The currency lost nearly 30 percent against the dollar last year, after notching a record low in August.
Economic growth slowed to 1.6 percent year-on-year in the third quarter last year, its worst performance in two years. Economists expect the economy to have contracted in 2018's fourth quarter as well as in the first quarter of this year.
S&P also said Turkey's growth prospects could improve beyond 2019.
Last year's currency crisis knocked companies' financials and stoked concerns regarding the state of the banking sector.
S&P added it may lower the ratings if it sees an increased likelihood of systemic banking distress that could undermine Turkey's fiscal position.
"So far the authorities have not provided any concrete plans as to how they might deal with a deterioration in bank asset quality", it said, adding that the response to the currency crisis had been "ad hoc, rather than coordinated and consistent".
(Reporting by Ali Kucukgocmen, editing by G Crosse)
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Updated Date: Feb 16, 2019 05:05:12 IST