The simplification steps taken in response to the loss of momentum in TL deposit interest rates, which also attracted the attention of the Turkish Central Bank (CBRT), will bring dynamism to lira deposit interest rates, which have fallen below 40 percent. The reduction in bond purchase obligations in loans is also expected to have an upward impact on bond rates and loan rates.
The new economic administration and the Central Bank continue to take simplification steps in the regulations for the banking sector, which were introduced in previous periods as part of the steps to return to traditional policies.
The most comprehensive simplification step was taken last week. The 30 percent securities facility in cash loans and the loan against invoice practice were terminated, the interest rate cap on commercial loans and the targets for the renewal of FX-converted KKM accounts were removed, and the lira deposit share increase target for real persons was increased from 2.5 percent to 3.5 percent. All these moves are expected to have a positive impact on the lira deposit rates, which have fallen below 40 percent in recent weeks. Credit rates and due to declining possible demand as well as bond rates are also expected to increase.
According to banking sector sources talking to EKONOMİ daily, bankers are waiting for CBRT to announce the implementation instructions of the steps taken last week, but nevertheless, these steps will significantly reduce the banking sector demand for the lira fixed rate bonds. The CBRT’s simplification step is also considered as an important step to reach a realistic level in bond yields, which are priced differently from market conditions due to obligations. As of Monday, the 2-year benchmark bond yield is 34.46 percent, the 5-year benchmark bond yield is 31.85 percent and the 10-year benchmark bond yield is 28.23 percent. Banking sector sources also pointed out that one of the purposes of this step is that when realistic pricing is provided, foreigners will show demand for bond purchases again.
The lira deposit interest rates may increase
The most important issue is deposit rates. It was noteworthy that the rise in deposit rates has lagged behind the rate of increase in policy and loan rates in recent weeks. While commercial loan rates approached 50 percent and personal loan rates rose above 60 percent, deposit rates remained below 45 percent for maturities up to 3 months and below 40 percent for total the lira deposits. Even for high-value deposits, deposit interest rates in some banks, which were above 40 percent a month ago, fell to 38 percent in recent weeks. In the decision text of the Monetary Policy Committee, the CBRT signaled that new steps would be taken to increase the share of TL deposits. And then came the simplification steps.
Emphasizing that the increased targets for the lira deposits in bank balance sheets have also been raised, sector sources stated that TL deposit interest rates will rise and may come to the fore in investors’ savings preferences.
Expected easing in access to credit
The step taken especially on commercial loans is also important for the sector. However, after the last policy rate hike, the upper limit for commercial loan interest has already risen to a very high level. When the CBRT raised the policy rate to 35 percent, the annual compound reference interest rate rose to 45.15 percent and the upper limit for commercial loan interest rates reached 81.27 percent. This upper limit on commercial loan interest rates has now been removed. For consumer loans over 70 thousand Turkish lira, the interest rate cap continues to apply. Sector experts pointed out that while the restrictions on loan growth continue, there is no room for banks to grow their loans, but only for loans that can be disbursed and will not exceed the growth limit, The process is simplified and the obligation to purchase bonds is not a requirement anymore. Experts said credit access regarding disbursed credits is set to ease as well.
Interest on consumer loans rise
According to the CBRT data, as of the week ending October 20, consumer loan interest rates rose to 61.33 percent, while commercial housing interest rates declined. According to the data, the commercial loan interest rate, which was 49.7 percent in the week of October 13, decreased to 48.02 percent in the week of October 20. The rise in vehicle loan interest continues. The vehicle loan interest rate, which was 41.52 percent on October 13, increased to 47.2 percent in the week of October 20. The housing loan interest rate, on the other hand, recorded a slight increase at 41.46 percent. There is a decrease in TL deposit interest rates. While the most preferred lira deposit interest rate with maturity of up to 3 months was 44.62 percent in the week of October 13, it decreased to 43.74 percent in the week of October 20. The total TL deposit interest rate decreased from 37.9 percent in the week of October 13 to 37.45 percent.
Public banks’ consumer loans shrink
CBRT data also point to a slowdown in loan growth in the sector and public banks. According to the data, in the week of October 20, the 13-week annualized exchange rate-adjusted loan growth in the sector came to 22.43 percent. It was 23.81 percent in the previous week and 25.84 percent at the end of August. In public banks, the 13-week annualized FX-adjusted loan growth, which was 25.15 percent in the week of October 13, declined to 21.47 percent in the week of October 20. In private banks, loan growth, which was 22.5 percent on October 13, increased to 23.35 percent in the week of October 20. The reason for the change in loan growth in both private and public banks is the movement in consumer loans. While public banks experienced an 8.73 percent contraction in consumer loans in 13-week annualized unadjusted terms, private banks recorded a consumer loan growth by 10.1 percent. In the week of October 13, consumer loan contraction in public banks was 6.54 percent, while consumer loan growth in private banks was 6.97 percent.