Turkey’s Isbank CEO sees challenges ahead, November interest rate cut By Reuters

By Ebru Tuncay

ISTANBUL (Reuters) – Turkish banks will pay the price throughout next year as challenges persist over the country’s economic recovery, the chief executive of lender Isbank said in an interview, adding that he expected the central bank to start cutting rates interest rates in November.

CEO Hakan Aran told Reuters that Turkey’s largest private bank by assets plans to expand its footprint in payment systems infrastructure, digital platforms and banking services, where it will make new partnerships and acquisitions abroad.

The growth plan comes as Isbank marks its 100th anniversary and as Turkish authorities seek to stamp out rising inflation with high interest rates and other tightening measures that have squeezed financial sector balance sheets.

“I think the difficulties will continue throughout 2025. We will all continue to pay the price for the sake of ensuring price stability and lower inflation,” Aran said in the interview at Isbank’s headquarters in Istanbul.

“Banks will ride this out with a deterioration in net interest margin this year and a deterioration in asset quality next year.”

Asset quality has already started to erode in July, while net interest margins are under serious pressure, Aran added.

“Banks’ return on equity is falling. If we were mandated to do ‘inflation accounting,’ many banks would probably report losses,” he said. “Banks seem to be profitable right now because there is no accounting for inflation.”

The government last year barred banks from companies applying inflation-adjusted accounting methods to their balance sheets over fears it would lead to lost tax revenue.

Since last June, the central bank has raised its policy rate to 50 percent from 8.5 percent to reverse years of unorthodox easy money policies under President Tayyip Erdogan, who has championed the turnaround.

Inflation fell below 62% last month and is expected to continue falling, introducing potential interest rate cuts in the coming months.

Aran predicted the central bank would begin easing monetary policy in November with a 250 basis point cut, roughly in line with analysts’ expectations. The rate would drop to 45 percent by the end of the year and to 25 percent by the end of 2025, he predicted.

ANNUAL INFLATION

September inflation data, released in early October, will “most likely record annual inflation below 50%, while the policy rate will remain above this. So I think there could be a gradual rate cut starting … in November,” Aran said.

Inflation has remained well above the central bank’s 5% target for years. Aran predicted a drop to around 42% by the end of the year and 20% a year later, slightly higher than official forecasts.

He said that population price expectations should converge towards the central bank’s much lower expectations in 2025.

The central bank will maintain its tight monetary policy stance unless there is an “extraordinary” risk or the re-emergence of a dollarization trend, Aran said.

He sees the pound weakening to 38 to the dollar by the end of 2024. It hit 34 for the first time on Friday.

Isbank, founded in 1924 mainly to finance industrial development and expand household savings, now has a market value of nearly $10 billion. It has ambitious international plans.

2021 CEO Aran said the lender aims to be among the top banks globally in terms of the breadth of geographies it operates in and the number of clients it serves.

Isbank is evaluating possible acquisitions and partnerships related to digital banking and payment systems abroad, particularly in the United Kingdom and the European Union, he said.

In the medium term, he said, a significant portion of revenue would come from payments infrastructure, digital and banking services. Isbank also aims 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 revenue comes from traditional banking and 10% from such new platforms,” ​​Aran said. “We are taking steps to bring this ratio closer together over the next five years.”