Turkey bank margins to rise
Agencies
Turkey's banking sector may see a gradual recovery in net interest margins by the end of the year, aided by anticipated monetary easing from the country's central bank, according to Fitch Ratings.
Ahmet Emre Kılınç, director of banks at Fitch, said on Tuesday that the credit ratings agency now projects the Central Bank of the Republic of Turkey (CBRT) to lower its benchmark interest rate to 33% by year-end.
'As a result, we expect an improvement in banks' net interest margins, although this recovery will be somewhat more modest compared to our initial projections at the beginning of the year,' Kılınç told Anadolu Agency (AA).
The CBRT pivoted to raising its key policy rate by 350 basis points in April to 46% and pushed the overnight lending rate to 49% after Turkish assets and the lira fell sharply after Istanbul Mayor Ekrem Imamoğlu was jailed pending trial over graft charges.
Before that, the bank had begun an easing cycle and gradually cut its one-week repo rate to 42.5% in March as inflation fell from the level of more than 75% that it reached in May 2024.
A sharper-than-anticipated slowdown in annual inflation to 35.41% has reignited speculation that the bank could resume rate cuts as early as this month.
The outlook for Turkish banks is shaped by domestic market developments and the impact of global customs tariffs, Kılınç said.
Before March, he noted, there was an expectation that continued rate cuts would support banks' interest margins, but this has been somewhat delayed due to volatility in the domestic market.
While the CBRT has signaled a cautious approach, analysts say the decline in inflation has provided some additional room for the bank to resume the rate cuts.
Any shift, however, will likely be contingent on whether the overnight lending rate converges with the policy rate in the coming weeks.
The CBRT's next monetary policy committee (MPC) meeting is scheduled for June 19, followed by another on July 24.
Last month, the bank kept its inflation forecast steady in its quarterly report, saying upward and downward risks balance out. Governor Fatih Karahan said the bank is ready to tighten policy if inflation worsens.
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