Turkish banks sustained a strong profit growth path across January-April with a 52% y/y increase in their combined net income to TRY17.5bn (€4bn), data from banking sector watchdog BDDK showed on May 31.
Despite the rising profits, however, Turkish banks remain under political pressure to cut interest rates. President Recep Tayyip Erdogan has been calling on the banks to offer more loans at more affordable rates to boost economic activity. On May 24, Erdogan renewed his attack on interest rates by saying that he sees high interest rates as a tool of exploitation.
Turkey's banks have ramped up their lending since the government pledged to make TRY250bn available to businesses under the credit guarantee fund (CGF) scheme.
The lenders' assets grew by 6% to reach TRY2.89tn at end-April from TRY2.73 at the end of 2016 while their total lending rose by 23% y/y to hit TRY1.86tn at the end of April.
The NPL/total loans ratio of the Turkish banking industry very slightly edged down from 3.32% at the end of March to 3.31% at the end of April.
Earlier this month, Moody’s Investor Services cautioned that the challenging macro environment may drive problem loans to above 4% over the next 12-18 months from 3.2% at end-2016.
The capital adequacy ratio stood at 16.38% as of end-March, up from 16.05% a month ago.
Turkish banks’ combined profits rose by 44% y/y to TRY37.5bn last year.
Turkish banks are set to see reduced profits due to lower interest margins, Huseyin Aydin, chairman of the Turkish Banking Association (TBB), warned on May 12. Earlier this week, Sabah newspaper reported that Turkish authorities were set to step in to end a potentially dangerous race among the country’s banks to attract deposits, fearing the aggressive strategy may hit the economy through higher lending costs.
Ersin Ozince, chairman of Turkey’s largest-listed lender Is Bankasi, warned on May 8 that Turkish banks’ funding costs were rising, endangering government efforts to engineer a credit boom. “Capital erosion is the most important issue in the Turkish banking industry, because capital has become the most important limited resource,” Ozince said in an interview with Bloomberg.