Türkiye | Monthly Banking Outlook. March 2025

Summary

On the back of both internal & external shocks, the CBRT hiked the ON lending rate to 46% and squeezed TL liquidity in March. With the tightening steps, credit growth decelerated and the increased funding costs are expected to weigh on the 2025 profitability of the sector.

Key points

• Key points:
• The tightening steps of the CBRT pushed up both credit and deposit interest rates in March; and credit growth has decelerated in the sector.
• Increase in TL commercial credit rates pulled down the growth in especially non-SMEs. On FC credits front, the CBRT’s further restrictions on monthly growth caps contained growth in this segment as well. Retail lending continues to be led by GPL and credit deposit accounts, albeit more moderate compared to February.
• The size of the FX-protected scheme (KKM) declined further to below $20 bn in the first week of April (3.6% of total). Following the recent shocks and the price effects in gold, FC deposits of residents rose to almost $190bn as of April 4. The intervention of the CBRT has decelerated last week with cooling down foreign currency demand from particularly residents.
• The slow but steady increase in NPL ratio continues, staying below 2% in early April. SMEs, credit cards and GPLs stay as the critical sectors for new NPL formation. We expect the currency adjusted CoR to be 150-200 bps in 2025.
• The increased funding costs are expected to narrow down NIMs in 2Q25 compared to 1Q25, causing a slower improvement throughout the year and hence causing ROE levels remaining below inflation by year-end (25-28% overall RoE in deposit banks vs. our revised 31% YE inflation) under the assumption of the CBRT starting to ease the policy rate June onwards (35% policy rate by end 2025). If the shocks prevail and the CBRT maintains a much tighter stance, we put a downward bias on NIM recovery.

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