Turkish Lira Overnight Reference Rate (TLREF) indexed loans, which became widespread during the period when interest rates were suppressed, were virtually eliminated with the normalization and simplification steps in monetary policy.
During the pre-election period of low interest rate policy, TLREF-indexed floating rate commercial loans were attractive for the real and banking sectors. After the monetary policy change, commercial loan interest rates exceeded the TLREF-indexed loan interest rate, the public sector stopped TLREF-indexed loans, and private banks started fixed-rate loan campaigns.
After the simplification steps taken by the new economy and the Central Bank administration in the banking sector, the taps were opened, especially in commercial loans with rising loan interest rates. Although high interest rates have reduced the real sector’s appetite for credit, the banking sector has begun fixed-rate commercial loan campaigns.
TLREF-indexed floating rate loans, which both the banking sector and the real sector found more attractive in the pre-election low interest rate environment, seem to have been suspended. The fact that the commercial loan interest rate exceeded 50 percent caused the interest rate of TLREF-indexed loans applied as TLREF plus 10 points to remain low. Recently, interest rates, which change every 7-15 days, have been disturbing the real sector and this has stopped especially public banks’ TLREF-indexed loans.
Simplification steps lifted interest rate caps
Before the elections, commercial loan interest rates were 14 percent and TLREF interest rates were around 10 percent. The banking sector was extending commercial loans with floating interest rates at TLREF plus 4-5 points. Therefore, both the real sector and the banking sector found it attractive to lend at TLREF-indexed interest rates due to low commercial loan rates. After June, the hikes in the policy rate and the steps taken to simplify macroprudential measures in the banking sector caused both commercial and consumer loan rates to turn upwards. TLREF interest rates also increased in line with the increase in the policy rate. However, commercial loan interest rates accelerated faster than TLREF rates.
Public banks halt TLREF-indexed lending
The banking sector started to update the monthly installment payments of its customers in TLREF-indexed floating rate loans with 7-15 day intervals due to the change in TLREF. While this situation troubled the real sector, the banking sector also showed signs of cooling off from TLREF, claiming that they could not reflect the change in the policy rate to monthly installments immediately. According to information obtained from banking sector sources, especially public banks have suspended TLREF-indexed floating rate commercial loans in recent weeks. Public bank sources emphasized that the constant updates in monthly installments damaged customer satisfaction, while the rising interest rates on fixed-rate commercial loans have become more attractive for the sector. Real sector sources, on the other hand, confirmed that public banks have stopped providing TLREF-indexed loans.
According to Central Bank data, commercial loan interest rates excluding corporate credit cards and overdraft accounts exceeded 50 percent on average in the week of November 10. It even reached up to 53 percent in some private banks. TLREF interest rate is at 36.33 percent as of yesterday. The banking sector was lending TLREF-indexed loans at an interest rate of TLREF plus 7-10 points. This indicates that loans can be extended with a maximum interest rate of 47 percent. However, commercial loan interest rates reached much higher levels than this rate. This situation led the banking sector to provide commercial loans with fixed interest rates instead of TLREF-indexed loans and to organize campaigns in this regard. According to information obtained from banking sector sources, some private banks have launched a fixed interest rate commercial loan campaign. Private banks that make commercial loan campaigns with an interest rate of 48.6 percent instead of the commercial loan interest rate of 50-53 percent are again lending above the interest rate on TLREF-indexed loans. Although the real sector’s appetite for credit is low, it prefers fixed-rate commercial loans that it knows the cost of and can plan for, rather than paying monthly installments with TLREF-indexed floating-rate loans.
Growth in commercial loans at 18.6 percent
According to Central Bank data, as of the week of November 10, the 13-week annualized exchange rate-adjusted loan growth in commercial loans in the banking sector is 18.58 percent. In the week of November 3, the growth rate was 18.93 percent and in the week of October 27, it was 20.49 percent. At the end of June, when simplification steps were just being taken, commercial loan growth in the sector was 14.32 percent, and in mid-August, it saw the lowest growth rate of the last period with 1.73 percent. After the simplification steps, commercial loan growth regained double digits.
However, despite the loss of momentum in commercial loan growth in recent weeks, private banks have been recovering. In 13-week annualized, exchange rate-adjusted terms, private banks reversed their commercial loan growth from double-digit contractions in mid-August to double-digit growth as of November. However, it still lags behind the loan growth of more than 20 percent in public banks. It is stated that the recent fixed-rate commercial loan campaigns of private banks will positively affect the loan growth of 15 percent. As of the week of November 10, the 13-week annualized exchange rate-adjusted commercial loan growth in public banks is 21.6 percent. This is below the growth rate of over 25 percent in September.
CONTRACTION IN CONSUMER CREDIT ACCELERATED IN PUBLIC SECTOR
According to Central Bank data, the 13-week annualized unadjusted growth in consumer loans is 12 percent in the banking sector. At the end of May, consumer loan growth in both public and private banks was quite high. Consumer loan growth, which was 63 percent in public banks and 82 percent in private banks, lost momentum after the steps taken by the Central Bank and the economy administration. In public banks, the 13-week annualized and exchange rate adjusted consumer loan growth turned negative as of the end of September. In the week of November 10, the contraction reached 11.67 percent. Growth in private banks, on the other hand, does not slow down and continues to be around 30 percent. As of November 10, consumer loan growth reached 29.64 percent. This growth is mostly driven by the use of high-interest personal loans.