ISTANBUL, Oct. 24 (Reuters) – Turkish state-owned banks are expected to cut borrowing costs on loans by around 200 basis points on Monday, according to three people familiar with the plan, following the unexpected rate cut. the central bank last week.
The big three public lenders Ziraat Bank, Halkbank (HALKB.IS) and Vakif Bank (VAKBN.IS) are expected to cut rates on business, personal, mortgage and other loans, the three banking sources told Reuters, speaking on condition of anonymity because they were not allowed to discuss it.
A lender on Friday sent an email to some staff, viewed by Reuters, informing them of the plan to cut costs by around 200 basis points. Another prominent banking source said state banks would cut rates “significantly to match” the central bank’s 200 basis point cut in its repo rate on Monday.
Cemil Ertem, chief adviser to the Turkish presidency and a member of the board of directors of Vakif Bank, said on Twitter that state banks had cut lending rates to the central bank’s key rate.
Ziraat Bank did not immediately comment. Halkbank declined to comment and a spokesperson for Vakif Bank did not immediately respond to a request for comment on the details of the plan.
Easing of policy by a central bank usually results in lower rates for borrowers, stimulating economic activity. But the size of last week’s 16% rate cut shocked markets and was twice the size of a Reuters poll’s most conciliatory estimate.
It sent the lira to an all-time high against the dollar and boosted benchmark yields, including a surge in the 10-year Turkish government bond to 20.53%.
RISK OF INFLATION
While the big state banks are expected to follow the central bank, market reaction last week suggests that granting cheaper loans will cost them dearly. And while a sharp cut in rates may help some businesses and consumers, many analysts say it may also exacerbate rising inflation and the depreciation of the pound, which could soon force the central bank to back down. go back and rise again.
The government’s Turkey Wealth Fund did not immediately comment on the reduction in borrowing costs by banks. It owns 100% Ziraat Bank, 75% Halkbank and 36% Vakif Bank, according to public data.
The central bank declined to comment on the state bank’s plan or any fallout.
Many analysts say the central bank’s credibility is tarnished by Turkish President Tayyip Erdogan’s public calls for a rate cut to boost credit and exports, despite inflation close to 20% last month.
Governor Sahap Kavcioglu has publicly stated that Turkey’s central bank sets its policy independently. Last week, the bank said it cut rates in part because inflationary pressure is temporary.
A self-proclaimed enemy of interest rates, Erdogan replaced much of the central bank’s top leadership this year. Turkey is now virtually the only one to cut rates as other central banks around the world work to avoid mounting global price pressures.
State banks aggressively increased credit last year to mitigate the fallout from the pandemic.
But some private lenders say they are hesitant given the risks of fueling an economy that is expected to grow by nearly 10% this year, and possible defaults on corporate foreign currency debt.
The managing director of lender Isbank (ISCTR.IS), Hakan Aran, said in a television interview on September 29 that the costs of credit will not decrease unless inflation is first reduced.
“If public banks cut rates and turn on the consumer lending tap (…) the extra lire that floods the system will only increase dollarization – exacerbating financial and economic pressures,” said Emre Peker, director of Eurasia Group based in London. .
In its policy statement on Thursday, the central bank spoke of the difficulty businesses have in obtaining commercial loans due to restrictive monetary policy.
Central bank data shows average rates on these loans have held steady at nearly 20% this year, although one of the sources said they were between 17.5% and 18% at banks. of state. These rates are among those that banks are expected to cut on Monday, according to the three sources.
Thursday’s rate cut was the central bank’s second in two months, following a 100 basis point cut in September. The easing of policy has caused the pound to fall 13% against the dollar since early September, reaching an all-time low of 9.75 in early trade on Monday, pushing inflation up via imports.
Erich Arispe, senior director of Fitch Ratings which covers Turkey, told Reuters on Friday that rising market yields after Thursday’s rate cut shows that “risk perception plays a role in funding conditions” for the Turkey.
Additional reporting and writing by Jonathan Spicer; Editing by Daren Butler and Susan Fenton
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