By Ebru Tuncay
ISTANBUL (Reuters) – Turkish banks pays the value throughout next yr as challenges linger from the country’s economic turnaround, the chief executive of lender Isbank said in an interview, adding he expects the central bank to start cutting rates of interest this November.
CEO Hakan Aran told Reuters that Turkey’s largest private bank by assets plans to expand its footprint in payment system infrastructure, digital platforms and repair banking, where it should make latest partnerships and acquisitions abroad.
The expansion plan comes as Isbank marks its 100-year anniversary, and as Turkish authorities seek to stamp out soaring inflation with high rates of interest and other tightening measures which have squeezed financial-sector balance sheets.
“I feel difficulties can even proceed throughout 2025. All of us will proceed to pay the value for the sake of ensuring price stability and lowering inflation,” Aran said within the interview at Isbank’s Istanbul headquarters.
“Banks will overcome this process with a deterioration in net interest margin this yr, and a deterioration within the asset quality next yr.”
Asset quality already began eroding in July, while net interest margins are under serious pressure, Aran added.
“Banks’ return on equity is decreasing. If we were mandated to do ‘inflation accounting’, many banks would probably be reporting losses,” he said. “Banks appear to be profitable without delay because there isn’t any inflation accounting.”
The federal government last yr excluded banks from firms applying inflation-adjusted accounting methods to their balance sheets over concerns it will end in tax revenue losses.
Since June last yr, the central bank has hiked its policy rate to 50% from 8.5% to reverse years of unorthodox easy-money policies under President Tayyip Erdogan, who supported the U-turn.
Inflation dipped below 62% last month and is predicted to proceed easing, establishing potential rate cuts within the months ahead.
Aran predicted the central bank would begin easing monetary policy in November with a 250 basis-point cut, roughly in keeping with analysts’ expectations. The speed would fall to 45% by yr end and to 25% by end-2025, he predicted.
ANNUAL INFLATION
September inflation data, released in early October, will “most likely see annual inflation below 50%, while the policy rate would remain above that. So I feel there might be a gradual rate cut starting … in November,” Aran said.
Inflation has remained well above the central bank’s 5% goal for years. Aran predicted a drop to about 42% by yr end and to twenty% a yr later, a bit higher than official forecasts.
He said household price expectations should converge toward the much lower central bank expectations in 2025.
The central bank will maintain its tight monetary policy stance unless there’s an “extraordinary” risk, or re-emergence of a dollarisation trend, Aran said.
He sees the lira weakening to 38 to the dollar by end-2024. It touched 34 for the primary time on Friday.
Isbank, founded in 1924 to primarily fund industrial development and expand household savings, now has a market value of nearly $10 billion. It has ambitious international plans.
CEO since 2021, Aran said the lender goals to be among the many top banks globally, when it comes to the breadth of geographies through which it operates and the variety of clients it serves.
Isbank is evaluating possible acquisitions and partnerships related to digital banking and payment systems abroad, especially in the UK and European Union, he said.
Within the medium term, he said, a significant slice of income would come from payments infrastructure, digital and repair banking. Isbank also goals to be a regional fintech hub, boosted by the recent merger of its subsidiary Moka Payment Institution with Birlesik Odeme Hizmetleri, he said.
“Currently, 90% of income comes from traditional banking and 10% from such latest platforms,” Aran said. “We’re taking steps to bring this ratio closer to one another in the subsequent five years.”
(Reporting by Ebru Tuncay; Writing by Huseyin Hayatsever; Editing by Can Sezer and David Holmes)