Erdogan pressure drives Turkish banks to cut mortgage rates to below deposit rates

By bne IntelliNews April 5, 2017

Rising liquidity costs caused by the implicit rate hikes of the Turkish central bank pushed the average cost of 3-month deposits for Turkey's banks to 11.30% while the average mortgage rate declined to 11.11%, Bloomberg reported on April 5.

Flying in the face of economic orthodoxy, Erdogan - who is into the last two weeks of campaigning for the April 16 referendum that critics say could turn him into a strongman president - is continuing to insist that lowering interest rates would result in lower inflation, as well as stronger economic growth. A more logical explanation for Erdogan’s intense fight against interest rates could be the Turkish economy’s dependence on the construction industry and as a result on housing demand.

The average interest rate for cash loans stood at 16.66%, for commercial loans at 15.51% and for vehicle loans for 15.42%, according to Bloomberg.

Private lenders slightly hiked their mortgage rates recently and the state-owned lenders are currently taking losses to finance the struggling construction industry, the news agency also reported.

Turkish Banking Industry

  end-2016 end-Jan m/m
Loans (TRY mn) 1,734,342 1,804,199 4.03%
Deposits (TRY mn) 1,453,660 1,499,811 3.17%
Gross NPL / Total Loans 3.35% 3.30% -0.05
Bank Capital to Assets 10.99% 10.76% -0.23
Capital Adequacy Ratio 15.57 15.15 -
ROA 1.37% 0.13% -1.25
ROE 12.50% 1.20% -11.30
Assets (TRY mn) 2,730,942 2,866,413 4.96%
Gross NPL (TRY mn) 58,071 59,512 2.48%
Net profit (TRY mn) 37,532 3,697 -
Net Interest Income (TRY mn) 91,343 9,073 -
Total Shareholders' Equity (TRY mn) 300,172 308,437 2.75%
source: bddk

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