Last week Turkey cut its benchmark rate for the fifth time since July, with a decrease of 75 basis points to 11.25%. The move aims to encourage more lending and boost economic growth.
Turkey’s economy struggled in 2019; following the country’s currency crisis in 2018 it had a brief recession where the economy saw a year-on-year contraction in three consecutive quarters to mid-2019. This year the government is targeting economic growth of 5%.
Turkey’s big banks decreased the amount they lent in 2018 compared with 2017, to both retail customers and corporates. For example, Turkey’s largest bank by Tier 1 capital, TC Ziraat Bankasi lent $22.7bn to retail customers in 2017, decreasing to $17.99bn in 2018. In 2017 it lent $59.2bn to corporate customers, decreasing to $46.4bn the following year.
Non-performing loan (NPL) levels have spiked at Turkish banks in recent years. Turkiye Garanti Bankasi, the country’s third largest bank, saw its NPL ratio double from 2.6% in 2017 to 5.2% in 2018. Increased NPL levels may have affected the ability or willingness of some banks to increase their lending.
