The meeting point of three continents, Istanbul Finance Center presents Anadolu Agency's Finance Desk, the program that sheds light on the economy and finance world. Welcome to the Finance Desk. With the contributions of Istanbul Finance Center, our first guest this year is the Chairman of the Board of the Banks Association of Turkey and General Manager of Ziraat Bank, Mr. Alpaslan Çakar. Welcome sir. Today we will ask our questions together with the Deputy Manager of Finance News, Mr. Birol. If you allow, I would like to start. Mr. Chairman, the Central Bank cut the policy rate by 250 basis points in its last MPC meeting, bringing it to 45%. The bank also changed the number of MPC meetings for 2025. The next meeting will be held in March. How do you evaluate both this planning change and the limited downward trend in interest rates as the banking sector?
Thank you for the invitation. Inflation is the biggest problem; it reduces predictability and harms sustainable growth. The Medium-Term Program (OVP) launched in September 2023 is a comprehensive disinflation plan covering monetary, fiscal, and income policies. Inflation fell from 65% in 2023 to 42% now, though services inflation remains high. Expectations are declining. The policy rate was cut from 50% to 45% in two steps, showing the OVP is working. The change to 8 MPC meetings per year aligns with the Fed and ECB. The banking sector strongly welcomes lower rates because without price stability there is no financial stability. Deposit costs are short-term (60 days) while loans are long-term (2+ years), so lower deposit rates improve net interest margins. We expect margins to turn positive in the second half of 2025. Lower rates also reduce financing costs for businesses.
Yes sir, there are important global events both in Turkey and the world. How do you evaluate the current point in the economy and especially the targets of the Medium-Term Program?
As I mentioned, the OVP was declared in September 2023 with the goal of fair income distribution and sustainable growth, built on four pillars: price stability, fiscal discipline, sustainable current account deficit, and structural reforms. For price stability, inflation dropped from 65% to 42%, and de-dollarization occurred with TL deposit share rising to 65%. For fiscal discipline, the budget deficit fell to 4.8% and is approaching the 3% Maastricht criterion excluding earthquake effects. For the current account deficit, it fell below 1% of GDP, helped by energy prices, reduced gold imports, and tourism revenues. Central Bank reserves reached $63bn net, CDS fell to 250, and rating agencies upgraded Turkey. Growth was 3%, driven by external demand. The OVP is working and delivering results, though patience and social consensus are required.
You touched on inflation, but I want to return to that. How do you evaluate the steps taken by the government and the Central Bank to control inflation? And what role does the banking sector play in achieving these goals?
The Central Bank's primary duty is price stability, and it has implemented macroprudential measures targeting the banking sector as the main transmission channel. Key measures include rules to increase TL deposits (share rose to 65%, FX deposits fell to 35%), reduction of KKM, and selective credit policies that exempted agriculture, tradesmen, defense industry, investment bonds, and exports from growth limits, while imposing monthly caps of 1.5-2.5% on other credits. The CB also used reserve requirements and deposit auctions for liquidity management. The banking sector, constituting 85% of the financial sector, fully complied, playing a vital role in the monetary transmission mechanism. Results are evident in our balance sheets.
You explained the macroprudential measures. Do you expect them to continue in 2025?
These measures were taken for extraordinary conditions. As inflation declines, normalization is desired. We have already seen simplification: removal of securities maintenance obligation, easing of TL deposit targets, and relaxation of SME credit growth limits from 1.5% to 2.5%. I believe in 2025 these measures will partially remain but gradually be phased out as normalization continues.
You touched on the KKM issue, but I want to return to it. The downward trend continues. How do you evaluate that? Also, regarding financing growth, foreign financing sources are important. What awaits the banking sector in these two areas in 2025?
Regarding KKM: introduced in December 2021, it served its purpose. At its peak it reached $144bn and 26% of deposits. Now it has fallen to $29bn and 5.3%. With the current account deficit manageable and CB reserves strong, KKM is no longer needed; I expect full closure in 2025. On foreign borrowing: Turkish banking sector's external borrowing increased from $132bn to $154bn in the past year. Ziraat Bank has borrowed about $20bn. Improved macro indicators have lowered borrowing costs. Our syndication in April 2024 was oversubscribed with 70 banks from 32 countries. This week, Ziraat issued a $750m Eurobond at 7.375% with 4-4.5x demand. I foresee no difficulties in external financing; rollover rates will be high.
Well, Mr. Chairman, regarding the global economy...
With the election of US President Donald Trump, there is an expectation that the Fed will not be hasty in cutting rates. How do these events shape Turkey's monetary policy? Do you share the view that the CBRT will not rush to cut rates? What are the risks and opportunities for the banking sector? Thank you.
The US economy is the global driver. 2024 was filled with political uncertainties and wars. Trump's victory brings protectionist policies, tariffs on Mexico, Canada, China, and demands for higher European defense spending. The US economy constitutes 26% of the world and 180% of trade is in dollars. After the election, US bond yields rose. Volatility may increase around Fed rate decisions, drawing capital to the US. But Turkey is better sheltered: the Central Bank's reserves are strong, the current account deficit has narrowed. Our monetary policy will be guided by our own disinflation data. Some Trump policies, like lower oil prices, could benefit us. We will position accordingly but decide based on our data.
You said the banking sector is strong with controllable NPL ratios. How was 2024 for the sector in terms of profitability and growth? Did higher financing costs in 2024 erode loan quality? What are your expectations for 2025?
In 2024, the sector grew 39% to 32.7 trillion TL. Loan growth was 38%. NPLs are manageable. Capital adequacy is 18%. Profit reached 659 billion TL. The share of TL deposits rose to 60%, FX deposits fell to 35%. Return on equity at 22% exceeds the 17% average of top industrial firms. For 2025, we forecast sector growth of 30%. Net interest margins should improve in the second half.
