Türkiye | Monthly Banking Monitor, June 2025

Summary

As a result of the ongoing tight monetary stance, credit growth trend turned into a deceleration from a moderate path. Higher level of real interest rates result in more restrictive financial conditions. Expected rate cuts in coming months and potential ease in regulatory growth caps might reverse this outlook a little bit.

Key points

• Key points:
• The growth momentum in TL credits was around the same levels in both public and private banks. TL commercial credit growth has decelerated further due to TL SME loans whose trend has moved even below the monthly growth limit lately. FC credit growth was limited compared to previous months, and mostly led by public banks
• Retail lending was driven by credit cards in June, due to mainly Bayram holidays. The card spending growth staying above inflation limits a clearer adjustment in domestic demand, albeit it’s decelerating.
• Recent geopolitical tension in the Middle East and news flow on domestic politics worsened the sentiment, resulting in FC demand of residents in June but to a low extent, helped by attractiveness of TL rates. The CBRT has also revised the deposit share rules and the RRs for KKM accounts in order to disincentivize dollarization since the sentiment is still very fragile.
• Due to delays in the easing cycle, banks continue to operate under high TL funding costs. However, after the start of the expected rate cuts in 3Q25, we expect the NIMs to improve in the last quarter of the year and the ROE levels to reach around 25% in 2025 for deposit banks (vs. our expectation of 25-28% prior to the twin shocks of March and April).
• NPL ratio continues to move upwards led by the retail NPLs. Commercial NPLs are still below their historical levels, however the increase in SME NPLs continues. With that, banks continue to increase their provisioning levels which leads us to expect the currency adjusted CoR in deposit banks to be around 200bps in 2025 (vs. our expectation of 150-200bps previously).

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