Following the central bank’s interest rate decision, public banks increased their loan interest rates

The Central Bank ended its two-year-long low-interest rate policy. In the last month’s Monetary Policy meeting, a decision to increase interest rates below expectations was made. Following the policy rate hike to 15%, public banks began raising their individual and commercial interest rates.

According to Reuters’ report, interest rates for housing loans up to 500,000 TL at public banks increased from 1.39% to 1.99%, while for housing loans of 2 million TL and above, interest rates were raised to as high as 2.4% at some public banks.

Interest rates for consumer loans at public banks also rose from 1.89% to 2.64%.

Limited lending continues

A banking source mentioned that public banks have raised interest rates on individual loans following the interest rate hike but added, “Limited lending is still ongoing.”

The Central Bank of Turkey (TCMB) increased its policy rate from 8.5% to 15% on June 22nd, considering the interest rate hike as a “first step” and stating that the tightening process will continue until a significant improvement in the inflation outlook is achieved. TCMB has also started taking gradual steps towards policy simplification in the macro framework.

As its first simplification step, TCMB reduced the reserve requirement ratios banks apply based on their Turkish lira (TL) deposits from the previous range of 3%-17% to 3%-12%. This move helped reduce the competition for TL deposits.

Meanwhile, private banks have also resumed granting consumer loans of 70,000 TL and above, which had come to a standstill due to the measures taken by the TCMB in the past two years and the additional obligations imposed on banks, including mandatory holdings of securities. Some banks have started offering consumer loans of 70,000 TL and above at a monthly interest rate of 5%, while the interest rate for housing loans has surpassed 3% per month.

Another banking source stated, “We see that the credit market, which had almost come to a halt after the elections, is gradually reopening. Credit activity had almost stopped between the two elections. Now, this is slowly reversing.”

Slight improvement in commercial loans

Bankers emphasized that there has been a slow recovery in the commercial loan market, noting a return to revolving credit instead of spot credit with the simplification measures. They stated that the interest rates introduced in this area to encourage banks to open up their credit channels are not sufficient, as the rates need to be removed.

TCMB’s regulation on holding certain securities at a specific interest rate plays a determining role in the maximum interest rate that the sector can apply to commercial loans.

Following the TCMB’s interest rate decision, a regulatory amendment published in the Official Gazette changed the reference interest rate used for this calculation from 0.81% to 1.36% for July. This step led to an increase in the upper limits of interest rates for commercial loans.

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