Türkiye | Tracking Financial Stress: Retail vs Corporate Dynamics

Summary

We construct retail and corporate financial stress indicators for Türkiye on a set of real, financial and survey variables. The common factor framework captures latent stress dynamics and provides an early signal for NPL trends, with decomposition allowing identification of key drivers.

Key points

• Key points:
• Financial stress indicators are constructed separately for retail and corporate segments using a multi-variable EM-PCA framework.
• The models integrate real, financial and soft indicators, covering a broad span of information for financial stress.
• Strong co-movement with NPL changes validates the framework, which captures credit risk dynamics while providing a more forward-looking and comprehensive view of financial stress than single indicators.
• Recent improvements reflect easing in financial conditions and labor market stabilization in retail, and declining concordat filings in corporates.
• Global geopolitical risks may tighten financial conditions, posing upside risks to stress and asset quality, partly mitigated by domestic measures.

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