Criticising the banks is a common pastime among Turkey’s business community. So ıt ıs hardly surprising that the conventional anti-inflation policies adopted from 2023 onwards have prompted a crescendo of complaints about high interest rates and limited access to credit.

Rıfat Hisarciklıoglu, head of the Union of Chambers (TOBB), was at it again in late July, first at meetings with state bank general directors and the central bank in Ankara, and then in a public speech in Bolu. The banks, however, have their own troubles to contend with. 

Blaming the banks

Hisarciklıoglu highlighted the wide margin between the central bank’s current de facto policy rate of 40% and the 60% interest paid by small and medium-sized businesses for loans. He also accused banks of putting up their lending rates immediately when the policy rate rises, but taking two months to lower them when it falls.

“It is not just the interest,” Hisarciklıoglu went on. “After commissions, expenses and fees, the costs that firms face exceed the advertised rate of interest... It’s our SMEs that are hardest hit. If their access to finance is blocked, the corner shop closes, the workshop in the town comes to a halt, and young people become unemployed... I’m speaking to all the banks here.”

Larger companies bemoan the cost of credit too. Turkey’s top 500 industrial enterprises spent 86% of their operating profit on financing in 2025, according to the Istanbul Chamber of Industry, while the next 500 spent 87%. These are startling figures even after allowing for an official consumer price inflation rate that stubbornly refuses to dip below 30%.

Tell-tale results

With policians and the public unlikely to sympathise, banks rarely respond publicly to the censures. But their financial performance tells its own story. Aggregate half-yearly results published by the regulator, the Banking Regulation and Supervision Agency (BDDK), at the beginning of August show that banking system profits increased by 25% in lira terms in the first half of 2026 and by 16% in the second quarter, compared to the same periods of 2025. Both figures represent a decline in real profits after adjustment for inflation.

At 15.8%, credit growth between December 2025 and June 2026 only slightly undershot the pace of consumer price inflation (17.8%), even though the central bank has imposed quantitative limits to help quell domestic demand. Contrary to business perceptions, interest rate margins narrowed as interest rates backed up in response to the Iran crisis and the related surge in commodity prices. Likewise, higher bond yields led to capital market losses. The slowing economy and tighter rules caused non-performing loans (NPLs), risk weightings and hence provisioning needs to creep upwards.

Total banking system assets stood at Turkish lira (TRY) 52.7 trillion (about €990bn) at the end of June, including TRY 26.8 trillion (€505bn) worth of loans. Six-month net profits amounted to TRY 527.4mn (€9.9mn).

Belatedly assessing the banks’ performance in the first quarter, Fitch Ratings said the average tier-1 capital ratio had fallen to 11.5% from 14.1% at end-2025, and that NPLs had rsien from 3.1% to 3.3% (BDDK data differ but display a similar trend). The rating agency correctly predicted that higher lira rates plus inflationary pressures would further squeeze margins and funding costs.

Shrinking system

The banking system underwent substantial reform and attracted a wave of foreign investment in the early 2000s. Solid and cautiously regulated, it remains one of Turkey’s most reliable and sophisticated sectors. The banks continue to dominate the financial sector notwithstanding efforts to enhance the capital markets and the emergence of alternative savings and payments institutions.

Nevertheless, tighter policies reduced the ratio of conventional bank assets to GDP to 74% in 2025 from 75% ın 2024, 90% in 2023 and 96% ın 2022, according to the Union of Banks (TBB)  The shrinking cake has to be shared among more than 60 competitors, half of which seek to offer comprehensive banking services to consumers and companies nationwide. These include state banks Ziraat Bank, Halkbank and Vakifbank, which account for 37% of deposit bank assets, the big four private banks – Akbank, Garanti BBVA, Isbank and YKB – and a plethora of foreign- and locally owned conventional, digital and “Islamic” banks.

TBB figures reveal that the return on equity of the banking system has trailed the consumer price index every year since 2017. This situation tends to erode the banks’ capital and their capacity to lend. In 2023, moreover, corporation tax for financial institutions was raised five points to 30%.

Coping strategies

Finance professor Senol Babuscu of Ankara University has said that inflation needs to fall below 15% before citizens will be able to obtain credit on better terms. This, he needlessly added, will be very difficult to achieve.

There are still some straws for the 1.5mn increasingly cash-strapped business represented by Hisarciklıoglu to clutch at. Export and investment loans are not subject to the central bank’s credit growth limits. Exporters can also apply for low-cost rediscount credits from the central bank. TOBB itself has cooperated with the public sector Credit Guarantee Fund and a number of leading banks to offer small businesses 24-48-month loans of up to 3mn lira (€55,000) at anmual rates of 34-36%.

With elections approaching in May 2028 or sooner, monetary policy, bank credit growth limits, rules on provisioning and reserve requirements could all eventually be relaxed, and/or a fresh programme of state guarantees could be offered for commercial loans.

In the meantime, major companies able to meet regulatory requirements and international financial criteria have been borrowing more from abroad, bypassing the Turkish banking system at the cost of added exchange rate risk. Gross corporate foreign debt rose by 18% in US dollar terms in the year to March 2026, reaching a record US$189bn (about €165bn).

Reset

By way of a long-term solution, Istanbul Chamber of Industry president Erdal Bahcivan called on August 5 for a “reset of the industrial finance architecture” including the roll-out of supply chain and commercial claims financing models, stronger guarantee and risk sharing mechanisms for SMEs, the expansion of development banking, project finance and investment finance, and easier access for SMEs to bonds, funds and other capital market instruments.