Moody’s placed the ratings of two Turkish covered bond issuers and a further eight Turkish banks on review for downgrade yesterday (Tuesday) as a result of pressures on the credit strength of the institutions and the rating agency’s changing views on the level of systemic support it should reflect in senior ratings.

Sekerbank and Yapi ve Kredi Bankasi (Yapi Kredi) are the two covered bond issuers affected by the rating action, with Sekerbank carrying a Ba1 long term local and foreign currency rating from Moody’s and Yapi Kredi a Baa2 long term local currency rating.

The rating action reflects Moody’s view that the standalone credit strength of the banks could come under increased pressure over the course of the next 12-18 months as a result of a material slowdown in real GDP growth in Turkey, and increased funding costs as a result of tapering by the US Federal Reserve and economic recovery in developed markets, with “a climate of uncertainty affecting the banks because of Turkey’s current political developments” also a factor.

The rating action was also driven by Moody’s changing views on the degree of systemic support that should be incorporated into the senior ratings of most Turkish banks. This is because of recent strong growth of Turkey’s banking system and its financial obligations in relation to GDP, according to Moody’s, which expects this growth to continue, thereby increasing the potential cost of any government support in case of need.