Turkish banks’ net interest margins to improve by end-2025

LONDON

The risks in the Turkish banking sector, as well as the current neutral outlook, remain manageable despite expectations of a lower policy rate and improved but lower-than-expected net interest margins by year-end, a Fitch Ratings director told Anadolu.

Ahmet Kilinc, director and head of Turkish banks at Fitch Ratings, said recent developments in Türkiye’s domestic market and the global implications of Washington’s tariffs have affected the outlook of the Turkish banking sector.

He said the decline in interest rates before March raised expectations that the banks’ interest margins would improve, but the volatility in the domestic market harmed these prospects.

Kilinc noted that Türkiye’s Central Bank raised its policy rate to 46% and provided banks with funds at a 49% upper band rate.

“We expect a lower policy rate of 33% at the end of the year, and we believe the banks’ net interest margins will improve, albeit less than expected compared to the estimates made at the beginning of the year,” he said, adding that high interest rates increased risk costs.

“We started to monitor the asset quality of banks more closely in the second half, and we still believe the banks can manage their risks to asset quality, which is why we maintained our neutral outlook for Turkish banks at the beginning of the year,” he noted.

“The operating environment score remains positive, and profitability could be better this year, but we think the recent market volatility disrupted the positive trend, pushing up the credit default swap, though it declined and is currently hovering at 300 basis points,” he added.

Kilinc said Turkish banks’ high short-term external debt poses a refinancing risk, though that is nothing new.

He emphasized the importance of market access, which was strong last year.

“Many banks issued both Eurobonds and capital-like loans last year, and since March, syndicated loans have been renewed at over 100%, indicating that banks’ access to external financing remains,” he said.

Kilinc emphasized that banks will have to wait for the “right environment,” as costs are the determining factor.

Amid the US interest rate policy, tariffs, and geopolitical risks, Turkish banks could be indirectly affected, impacting the outlook. Kilinc added that the impact of tariffs on the Turkish banking sector will likely remain limited.