Erdogan back on the war path against “profiteering” Turkish banks

Erdogan back on the war path against “profiteering” Turkish banks
“Something must be wrong if banks’ profits grew by 40% when the economy expanded at only 2.9% last year,” said Erdogan.
By bne IntelliNews August 9, 2017

Turkey's President Recep Tayyip Erdogan on August 8 recommenced his war against banks making fat profits on citizens’ money by charging high interest rates. He lashed out at local lenders and again called for cheaper loans to boost economic activity.

“Something must be wrong if banks’ profits grew by 40% when the economy expanded at only 2.9% last year. I believe the central bank and lenders will take necessary steps to lower interest rates,” he said.

“Banks have nearly doubled their profits – this is a disaster,” Erdogan said. “It is our right to expect banks to reduce interest rates to reasonable levels and contribute to the country’s economic development.”

The populist Erdogan’s intervention is one of several such declarations he and ministers have made in the past year. The ruling politicians have stopped short of questioning the central bank's independence when it comes to setting interest rates, but on June 22 Prime Minister Binali Yildirim issued a “final” ultimatum to banks to cut rates, saying: “I am making the last call before the train leaves: either you adopt a reasonable interest rate or we will take measures... Our bankers should not regard this as a threat – we have instruments at our disposal.”

The combined net income of Turkish banks increased by 33% y/y to reach TRY25.35bn (€6.1bn) in the first half of this year, data from banking sector watchdog BDDK showed on July 31. This year’s growth in the profits of Turkish banks is expected to be between 15% and 20%, Huseyin Aydin, head of The Banks Association of Turkey (TBB), told media on August 8.

Erdogan, who has declared himself “an enemy of interest rates”, once said that he saw high interest rates as a tool of exploitation.

“As the upper limit defined in credits secured by the Credit Guarantee Fund (CGF) is near and as the supply-side effects have recently stopped in the banking sector, credit growth which lost pace starting from June is expected to be balanced at milder levels as of the second half of the year,” the central bank argued in the minutes of its last monetary policy committee meeting.

Under the CGF, the government has made a massive TRY250bn (€63bn) available to guarantee loans, primarily to small and medium sized enterprises.The Banks Association of Turkey said on August 8 that so far TRY207bn had been provided from the fund to backstop lending.

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