Gradual interest rate reductions in Türkiye next year are expected to strengthen the banking sector and bolster demand for Turkish lira assets, the chief executive of one of the country's top private lenders on Monday.
Last week, the Central Bank of the Republic of Türkiye (CBRT) cut its policy rate by 250 basis points to 47.5%, marking a change in course after an 18-month tightening cycle that sought to curb inflation.
During the tightening, banks experienced a sharp decline in credit growth and profitability, with margins held down by increasing interest rates, credit restrictions and macroprudential measures.
Garanti BBVA CEO Mahmut Akten said the results of normalization in economic policies in 2024 would become more visible next year.
"We expect a more positive picture for the banking sector, especially in the second half of the year. Gradual interest rate cuts will positively affect the credit-deposit spread and the trend in margins," Akten told an interview with Reuters.
The easing cycle is meant to end the economic slowdown. Rate cuts are expected to total 2,150 basis points by end-2025, according to a Reuters poll.
Garanti BBVA is Türkiye's second largest private bank, with consolidated assets of TL 2.88 trillion ($86 billion) as of the end of September.
Meager profits
Turkish banks' profits increased a meager 5% in the first nine months, far below inflation of 49% in September. Garanti's net income was up 16% at TL 67 billion in the first nine months.
Akten said the course of inflation, currently at 47%, and continuing credit growth restrictions will determine growth dynamics, and it would be realistic to expect real credit growth to come in 2026, rather than in 2025.
He said the bank expected continued normalization in the cost of risk next year, with the sector focused on risk management.
As the banking sector struggled against the macroprudential measures and increased funding costs, lira loan growth this year remained below inflation and contracted in real terms, he said.
A decrease in exchange rate volatility and increasing demand led to foreign exchange loan growth reaching the same level as lira loan growth, he said.
Akten expected Türkiye to benefit more from global capital flows if central banks continue to support global liquidity conditions, Türkiye's credit ratings increase and credit default swap (CDS) levels decrease further.