Turkish banks obey Erdogan’s calls to slash interest

Bloomberg

Turkey’s banks are taking their orders from the top.
At least seven lenders in the country announced they’d slashed interest charges on mortgage loans after President Recep Tayyip Erdogan said resistance to lower borrowing costs could be ” treason.” The remarks were the harshest yet from Erdogan, who’s been pushing the nation’s central bank for several years to cut rates.
The comments also opened a new chapter for investors in Turkey, with government demands on interest rate policies moving from the central bank to the free market. The banks that obeyed Erdogan’s call included state-run lenders TC Ziraat Bankasi AS, Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi TAO, along with private lenders Denizbank, TEB, Sekerbank and Kuveyt Turk. The country’s largest private lenders — Garanti, Akbank and Isbank — have yet to say whether they’ll follow.

Home Buyers
The rates that the government is calling for could mean losses for lenders, according to Sadrettin Bagci, a banking analyst at Deniz Invest in Istanbul. Erdogan is calling for rates to be lowered to about 9 percent annually, from 13.72 percent now.
“Where would banks make money if the funding costs are around 8 percent on a weighted average and housing loan rates are 9 percent, as the government wants?” Bagci said in a phone interview from Istanbul on Wednesday. “Banks can’t lend to home buyers at 9 percent with a 300 basis-point loss.”
Mehmet Ali Akben, head of the banking regulator, said the banks could afford the cuts if they stopped spending on luxurious buildings and branches.
“Don’t compete on interest rates on deposits,” Akben was quoted as saying by Dunya newspaper on Thursday. By cutting spending on fancy buildings by 10 percent, the banks could reduce their loan rates to customers by another 25 basis points per month, he said.
The reduced rates follow a decision by the central bank to cut the amount of cash that commercial banks must keep locked up with the regulator — the so-called lira reserve requirement ratio — by half a percentage point on Tuesday. It also allowed lenders to use a small amount of foreign currency and gold as reserves for lira liabilities.

Lifting Restrictions
Meanwhile, restrictions imposed on private banks in past years aimed at curbing consumer loan growth are being lifted. Turkey’s average annual consumer loan growth rate was about 55 percent in the 13 years previous to 2015, when it slowed to around 8.3 percent. The limits were imposed under former economy chief, then-Deputy Prime Minister Ali Babacan, to help tame growth in the nation’s current-account deficit, which had ballooned as consumer credit fueled demand for imported goods.
“We expect the economic administration to take new steps toward easing the macro-prudential measures,” said Hakan Ates, chief executive of Denizbank, in a news conference in Istanbul on Wednesday when he announced his bank, which is owned by Russia’s Sberbank, also cut mortgage rates. “New steps could be toward lowering the tax burden, which will comfort the banks,” he said.
The seven lenders that have so far announced reduced mortgage rates have cut the interest charges to annualized levels of around 11.5 percent.
“There’s a disagreement between me and bankers on rates,” Erdogan said Thursday in a speech at the presidential palace to the Turkish exporters assembly TIM. “Our banking sector is strong, but if they try to turn this strength into an opportunity at a time like this, they’ll find us against them.”