Photographer: Ismail Ferdous/Bloomberg

Turkish Banks Obey Erdogan’s Calls as Mortgage Rates Slashed

Updated on
  • ‘There’s a disagreement between me and bankers’: Erdogan
  • 14 banks cut mortgage rates after Erdogan warns of ‘treason’

Turkey’s banks are taking their orders from the top.

By Thursday at 7 p.m. in Istanbul, at least 14 lenders in the country announced they’d slashed interest charges on mortgage loans since President Recep Tayyip Erdogan said on Wednesday that 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. Garanti Mortgage, a unit of Turkiye Garanti Bankasi AS, the country’s biggest lender by value, Akbank TAS and Yapi Kredi Bankasi AS are the latest to obey Erdogan’s call. Earlier, state-run lenders TC Ziraat Bankasi AS, Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi TAO, along with private lenders Denizbank, TEB, Sekerbank, Kuveyt Turk, Vakif Katilim, Finansbank, Ziraat Katilim and Alternatifbank all cut. Turkiye Is Bankasi AS, Turkey’s biggest by assets and known as Isbank -- has yet to say whether it will 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 BDDK, 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.

“If banks are recalling loans with opportunistic motives because of market conditions, we will definitely not allow this,” Akben told state-run Anadolu Agency on Thursday. “If there are complaints about banks, we are asking people to complain to the BDDK hot-line by naming the bank and company.”

Uninterrupted Growth

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.

“The reduction in interest rates aims at supporting the Turkish economy’s uninterrupted growth,” said Sezin Erken, deputy chief executive officer at Alternatifbank, owned by Commercial Bank of Qatar, in an e-mailed statement announcing the rate cut. “We think social solidarity and continuation of confidence in the future transcend everything else.”

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 prior 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.

‘New Steps’

“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.”

The lenders that have so far announced reduced mortgage rates have cut the interest charges to annualized levels of around 11.5 percent or higher.

Property Developer

The move to cut mortgage rates has boosted the share price of Emlak Konut Gayrimenkul Yatirim Ortakligi AS, Turkey’s biggest housing developer. The state-owned Istanbul-based company rallied 10.1 percent since July 28, when it announced its own campaign to facilitate home buyer payments, beating the 5 percent advance in the Borsa Istanbul 100 Index.

Turkey halted the operations of Asya Katilim Bankasi AS, a Shariah-compliant lender linked to exiled preacher Fethullah Gulen, as the government widened a purge to eliminate followers of Gulen from the state institutions after accusing them of plotting a failed coup on July 15 to topple Erdogan. Bank Asya, as the lender is also known, was taken over by a government receivership fund last year over allegations that it was funding the Gulen movement. Its operations were halted last month after the failed coup.

"There’s a disagreement between me and bankers on rates," Erdogan said Wednesday 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."