You are on CMC screens. It's 10 o'clock. We are here with the Money Screen, dear viewers. We have started the second trading week of February. In the first week, we discussed monetary policy and macro-prudential steps. New moves came from the Central Bank. The BDDK made a credit regulation. This week, on Thursday, the first inflation report of the year will be announced. So, how will the latest steps reflect on banks' balance sheets, credit appetite, and profitability, or are they already reflecting? Will 2026 be a year of balance for the banking sector, or will a new story be written? We will discuss the answers to these questions with Hakan Aran, the General Manager of İş Bankası, one of Turkey's established and large financial institutions. Moreover, İş Bankası's balance sheet, announced on Friday, will also be on the table. Good morning, Mr. Hakan.
Welcome to the broadcast.
I'm fine, thank you. Are you well too?
Thank you very much. Seeing you made us feel better. As you know, we have started an important week. All eyes are on Thursday. Before this important week, before the inflation report presentation, your views are extremely valuable to us. If you like, let's start with the Central Bank. I have many questions to ask. There are many topics of interest. Especially the inflation report presentation will be the first inflation report of the year. In the January MPC meeting, the Central Bank cut interest rates below market expectations. And the next meeting is in March. Shall we start with January? How did you evaluate the January MPC step? What did the Central Bank say to the market? I think it was evaluated like this: The Central Bank said, 'I see the inflation development, and inflation will come out higher than I thought. That's why I'm not cutting interest rates as much as you expect, and I'm limiting this cut to 100 basis points.' The 4.84% January inflation announced in January was actually something it had foreseen. When that decision came out as 100 basis points, we said, 'Oh no, January inflation will come in high.'
Now, friends, let's have three data, three comments on the screen. The summary data is already there. The Central Bank's intermediate target is 16% inflation. You just highlighted the January inflation. It came in at 4.8%. The policy rate is at 37%. So, what do you think about February? On Thursday, how will the Central Bank evaluate January inflation? Will we be able to get signals about February?
Yes. So, actually, as you know, its last evaluation was on November 7th. And on November 7th, interestingly, it had said that year-end inflation would end in the 31-33% band with a 70% probability. However, it ended at 30.89%. So, the Central Bank was wrong in its forecast, but it was wrong in a positive way. It had pointed to that 31-33 range on November 7th. This shows how dynamic Turkey is, that even a 2-month, even a 1.5-month experience can change the expected inflation or inflation expectations so much. I think we need to refer to that. Uh-huh.
The Central Bank's error in November and the inflation coming in low enough to surprise the Central Bank was important. January inflation of 4.84% may have been demoralizing, but let me say this. Do you remember what the January inflation was in 2022? January 2022 was over 11%. In 2023, it was 6.6%. In 2024, it was again over 6%. In 2025, it was over 5%. Actually, the lowest January inflation of the last 4 years was announced. So, we shouldn't forget where we came from in the inflation we are fighting. We are coming from very high inflation figures, from places where we saw monthly 11%. That's why 4.84% came in. Second, the Central Bank had said it wouldn't change its intermediate target, but in that meeting on November 7th, it had given a 13-19 range for the end of 2026. Now, the 4.84% inflation figure that came in January, I think, has made the 13-19 range unattainable. The inflation expectation now needs to go up for the Central Bank. And the bottom point needs to be 19. That is, instead of the 13-19 range, if it keeps the 6-point range, it needs to bring it to the 19-25 range. Because, in our view, 2026 inflation will end somewhere in the 19-25% range. The 13-19 range has unfortunately lost its validity with January inflation. Despite being the best inflation figure of the last 4 years, our expectation is that if January inflation had been announced between 3.40-3.50, the probability of hitting the 19 target would have been high. But that expectation was also around there.
It made 19 the minimum point. Now 19 is very difficult. The 19-25 range, I think, but will the Central Bank admit this on Thursday? And will it be a bit more insistent on this issue? We will see. Because what we don't know is how it will actually behave, what it will do at its March meeting on March 12th is important. Therefore, in the first meeting, it might not make this evaluation and prefer to see February and March inflation and the impact of the March 12th decision, and not change its expectation here.
Yes. I think there should be an update. However, it might not do it in this meeting either. Because it's the first meeting of the year. So, if it doesn't, how will the March meeting be affected? Because if we remember, at the London meeting, Governor Karahan had already pointed out that January and February inflation could be volatile. So, if February also comes in high, what will the Central Bank do in March? Will it pass?
Yes. So, in the current picture, the possibility of passing in March is high. It could pass in March. Because this would be another step showing the Central Bank's determination in the fight against inflation. In January, we were all expecting 150 basis points, it did 100. 100 is expected in March now. It might not do anything in March either. This means that interest rates, perhaps the interest rate level, hasn't fallen. We are continuing with a 37% policy rate. But the Central Bank's determination, the expectation that inflation will fall, is much more valuable than the current interest rate level. In this case, there is an inflow into Turkey's 5-year, 10-year, 2-year maturity papers. Because it will be successful in the fight against inflation, their interest rates are falling, and banks' appetite to give credit in the market for 24 and 36-month maturities is starting to increase. Because banks also want to benefit from the falling inflation and subsequent interest rate cuts by positioning in credit in advance. Sometimes something that seems bad, not cutting interest rates, can actually lead to good things because it causes long-term interest rates to fall.
So, where do you think we will close the year? What do you expect for the end of the year?
Yes. So, for the end of the year, an inflation expectation in the 23-25 range, and since it's 23-25, a policy rate in the 28-30 band. If it's 23, it can go down to 28, if it's 25, it can go down to 30.
So, how do you evaluate the steps taken at the end of January? The steps from the Central Bank. Both from the Central Bank and the BDDK. So, to mitigate the impact of the 4.84% inflation on expectations and to minimize the deviation from the 13-19 band, which is its inflation expectation, the additional tightening steps taken are actually equivalent to interest rate hikes. In foreign currency loans, there was already a 0.5% growth restriction. This was halved. It was 0.5% monthly. Now we will be able to grow 0.5% every two months. An important step to tighten the market. A step came from the BDDK regarding credit card limits. That also doesn't have a tightening effect on the market, perhaps, but it's a step taken with respect to protect small investors, prevent fraud, because unused limits are often used by those committing fraud, so it's a step to protect the investor. But with the restrictions on overdraft account limits and similar things, we need to see it as additional tightening steps. After cutting interest rates, these are steps taken to ensure February inflation comes in low.
So, how does February inflation affect banks? What is the impact on balance sheet composition, credit appetite? How do these steps affect it?
Well, every time, we unfortunately complete those 4-week, 8-week credit growth restrictions in the first week. That is, in the first week when those restrictions are renewed, all our credit targets are met. Because there is such a big credit demand. The market is so squeezed that you reach the place you need to be in 8 weeks in 1 week. The other 7 weeks, you shouldn't give credit for 7 weeks. Because the penalty for giving credit is very heavy. If you exceed that growth restriction, you have to keep the amount you opened interest-free at the Central Bank for 1 year. Since no bank can make a profit from a credit it gives like that, all the pricing after the first week is a 'don't take credit' pricing. So, in this picture, you can use credit in the first week of every month or the first week after every two months when the restriction ends. After that, credits are closed. Only exceptions like investment incentive certificates, some credits in the earthquake zone can still be given. But apart from that, the credit market is in a very serious state of restriction. This inevitably affects banks' profitability significantly. Since 2017-18, for the last 7-8 years, banks' profitability, return on equity, has always been below inflation, and banks have come to today by eroding equity. That is a problematic picture for banks, for banking. If this interest rate cut cycle is not broken for the first time in 2026, and if there is a trend in inflation and interest rates as we discussed earlier, perhaps 2026 will be the first year in the last 10 years that banks' return on equity is above average inflation. This can be seen as the first signal of Turkey's sustainable and profitable growth from now on, because when our return on equity goes above inflation, the sector will follow this, meaning the real sector will reach a point to follow this. Let's hope that in the last year of this tight monetary policy program that prioritizes inflation, all these balances are formed, and for Turkey, a sustainable and profitable growth period starts after 2027. A year-end inflation of 23% is still an achievable inflation and an inflation that can improve morale, considering we started the year with 31%.
So, Mr. Hakan, you mentioned the real sector. Speaking of the real sector, as you know, the real sector is expressing that steps need to be taken recently. Regarding banks, banks are making a lot of profit. They have a lot of resources, but when it comes to using these resources, comments about being a bit stingy are also coming. How do you evaluate this?
Yes. So, as you know, we are actually in trouble as a country. If you look at what we have been trying to do for the last 3 years, we are in the 3rd year since the medium-term program was first announced. What we are trying to do is this: The Central Bank reserves, which fell to 60 billion dollars, have today been brought back to 100 billion dollars by the Central Bank. We were targeting gross reserves of 200 billion dollars. It exceeded 200 billion dollars. There are gross reserves approaching 220 billion dollars. So, as a country, we are accumulating reserves, but all the work we are doing, that is, we are increasing national income, we have raised per capita income to 17,000 dollars. Maybe we will see 20,000 dollars in national income by the end of next year. But behind everything we are trying to do, we are working on the interest of the external debt we took to get out of this difficult situation we are in. That's why there is a difficult situation inside. While trying to lower inflation, while managing the economy with tight monetary policy, whether you are a bank or the real sector, we are all paying the interest of the financiers from whom we took resources, because our savings are limited. So, when the real sector lifts its head here, it sees banks, but what it doesn't see is where banks got this money from. We got it from outside. So, as a country, we don't need to fall out with each other while we are going through this. We are all fulfilling our responsibilities and paying a significant debt. Because our treasury was empty. We filled that treasury. Now, after this, interest rates have started to fall. We can find credit from abroad at more favorable rates. The period when we can use that inside will come. After achieving results in the fight against inflation, both the real sector will win, and since we are mediating this, we will also really win because we are paying less interest abroad. But right now, neither the real sector is winning, nor are banks winning. I don't think there is a winning side within Turkey. The trouble comes from there, but since we only see each other inside, we don't need to fall out with each other. We are all actually experiencing the same trouble from different sides. Currently, the winners are unfortunately those who have used their money more wisely until today, the foreign financiers. So, you said when the return on equity goes above inflation, a breath can be taken. Is 2027 the year to take a breath?
I think it is. 2027 will be a year when everyone will take a breath. Because from now on, policy will also need to change. Since it will turn to a more inclusive development policy, all parties will actually see that profitability is increasing, employment is increasing, production is increasing, and the years we are used to, these years we are used to, don't misunderstand, not the 2022 years. To get there, I had asked you, do you remember January 2022? It was 11%. We need to go back to January 2021 and January 2020. Where monthly inflation was 1%. We now miss and long for that 17% inflation, I say 'rose-like' now. When there was 17% inflation, with monthly inflation figures between 1% and 0.5%, our price memory was intact, when we went somewhere, we knew what the price of something was, that it wasn't broken. I mean that period. So, except for 2022, I'm leaving it, but 2021 and the period before the pandemic, I wish it would be like that. Our brightest growth periods between 2012-15, the day we got our investment-grade country rating. But we will have entered that path in 2027. It was a period of solving our problems. We need to look at the 3 years as such. We created a lot of problems for ourselves. Those problems we created didn't have much counterpart in the world. We created them. Now we solved them. From now on, 2027 should be seen as the starting year when we will take our place in the global economy again as a country that has solved its problems.
So, Mr. Hakan, now, on the one hand, financials are also coming. We will also talk about İş Bankası's balance sheet in a moment. When we look at 2026, which is more critical: profitability, asset quality, capital? How did the banking sector start the year?
Well, actually, we need to look at how we closed last year. When we closed last year, our balance sheet was, I think, a balance sheet that improved the sector's morale. Because compared to the 3rd quarter, in the 4th quarter, due to those interest rate cuts, net interest margin increased, return on equity increased, profit increased compared to the previous quarter. It was valuable in terms of showing how such a balance sheet could be formed. With the net profit figure, we announced the second largest profit among private banks in the sector. In terms of asset size, we have the largest asset size with 4.6 trillion. By the way, the sector's asset size also became 46 trillion. So, we have a 10% market share in asset size. Our equity size is 428 billion, an important figure. Here, we have more than 10% share. In deposits, 3.1 trillion, the sector also had about 27 trillion in deposits. Here too, we have more than 10% share. So, the only place where we have less than 10% share, which roughly shows 10% of the sector, is the net profit figure. Public banks' profit increased a lot this year. So, in the others, we see a picture of 10% of the sector. In this respect, I see that expectations for the banking sector for 2026 have improved and it is interpreted as a balance sheet that is positively perceived by investors.
Uh-huh. So, 4.6 trillion lira, the size the bank's asset size has reached. So, at this scale, what is the main success criterion for the balance sheet for you right now? Is it size, or how the size is managed?
Of course, right now the most important thing is return on equity. We have allocated a very important equity. Normally, when you look at it, you see about an 18% ratio between the equity figure and profit. 18% profit. If you had kept your 428 billion in a bank, you would have received 214 billion lira in interest per year. So, as a shareholder, you are setting up a bank. You are creating a 4.6 trillion asset. You are managing it. You are taking the risk. Regulatory risk, reputation risk, counterparty risk, credit risk, you take everything and you make 67.4 billion lira profit. In that respect, from a shareholder's perspective, from a banking perspective, it's not a very attractive period. The size of 67.4 makes people say banks are making a lot of profit, but would any business person invest 428 billion in a bank to get 67.4 billion lira at the end of the year? He has to answer that question himself. That's why we don't need to fall out with each other. The most important thing is this return on equity, which is currently around 18%, our average annual return on equity should be at least as much as average inflation, so that we know we are in a business area that strengthens equity, not erodes it. As equity erodes, it actually erodes and restricts the power of this banking sector. When the real sector wants to grow and these restrictions are lifted, we need to keep our equity strong to support them in terms of credit and to grow our assets more. In that respect, the strength of the banking sector is actually something necessary for the whole country. Otherwise, we cannot achieve economic growth. If banks cannot perform that task, then this time it can create a burden on the public. We have seen this in past periods. No one can handle a bank becoming a burden on the public. That is, if all taxpayers got together and gave all our earnings, we couldn't handle this burden. That's why we need to look at the picture from the right place. We must not forget that we are all together for the same purpose. And return on equity is the most important metric.
So, Mr. Hakan, we will continue talking about the balance sheet, but before that, we will take a short break. Don't leave us, dear viewers. We will continue our conversation from where we left off.
We are continuing with the macro agenda. Our studio guest is with us. İş Bankası General Manager Hakan Aran continues to accompany us. Mr. Hakan, we were talking about the balance sheet. Now, there are some points we are curious about regarding the financials. Let's touch on those as well. The total resources provided to the economy have reached 3.3 trillion lira. This is the information we have with the latest financials. So, in which sectors is İş Bankası especially increasing its selectivity? Will it be giving credit, or reaching the right credit at the right price? I would like to hear your views on this point as well.
Well, of that 3.3 trillion resource, 2.3 trillion is from cash loans, and about 1 trillion is from non-cash loans, mainly from letters of credit. So, in this credit growth, due to the restrictions I mentioned earlier, we prefer to grow in investment credits that are exempt from these restrictions and sector-specific. Now, as İş Bankası, we have some strategic sectors we have determined. Actually, in this country, in our country's economic agenda, there are also determined strategic sectors.
It overlaps. But we, especially, attach importance to tourism and agriculture. In terms of tourism banking, we transferred a very important resource to the tourism sector in the last two years. Our loans to the tourism sector reached approximately 2 trillion. Therefore, we achieved serious growth in the tourism sector and agriculture and gained market share. Let me put it this way. Among private banks, for every 4 liras of credit given to the tourism sector, İş Bankası provided 1 lira. This was an important thing. It was an important focus for us. Alongside that, defense industry, space and aviation, weapons and ammunition, the rising group of Turkey in the defense industry, the entire ecosystem, not just the big players but also the SMEs and businesses around them, were in our focus. The iron and steel sector, production, manufacturing industry. These were the sectors we primarily lent to and where investment was also intensive. We can also add railway transport and automotive to these. Therefore, in İş Bankası's credit policy, there was an approach of supporting almost all business people investing in such sector-specific areas. Our growth came mainly from there.
Uh-huh. Let's also touch on the deposit volume here. 3.1 trillion lira, right? I think you are also the leader among private banks with this deposit. So, is a high deposit volume an advantage for banks today, or is it a new test in terms of cost management? What do you say?
Well, deposits in Turkey, since savings are very limited, deposits are naturally in the hands of the one who grabs them. There is a very serious deposit competition. There is a deposit race. But without deposits, you don't have a chance to manage a balance sheet of this size. We are Turkey's largest deposit-collecting bank with 3.1 trillion. Despite this, managing this asset size, deposits are not enough. We need to borrow approximately 300 billion lira from the Central Bank to manage our portfolio. That's why, although 3.1 is the largest, to manage the 4.6 trillion asset size, we need to borrow an additional 300 billion lira from the center. This actually shows where we make profit during these interest rate cut periods. The 300 billion lira you borrow from the center every week, well, when coming to January, you were borrowing at 39.5%. After the December meeting, you started borrowing at 38%. After the January meeting, you borrowed at 37%. You give your loans with 24 or 36-month terms. You borrow from the Central Bank for one week at a time. Therefore, these interest rate cuts in between show why your profitability increased, why profit rose in the last quarter. Otherwise, the interest you give on deposits and the interest you get from loans are head-to-head. There isn't much. There isn't a significant profit margin in banking there. So, Mr. Hakan, in the first month of 2026, that is, in January, last month, you carried out the first capital-natured euro bond issuance from Turkey, right? So, did international investors look at Turkey in this transaction, or did they look at İş Bankası? How do foreigners look at Turkey?
Well, they looked at both actually. Both Turkey's improving economic balances, you know, Turkey has significantly increased its rating in the last two years. The rating increases, the IMF turning its outlook to positive in its last meeting, created hope for another rating increase this year. Every increasing rating, every decreasing country risk premium, CDS level, which approached 200. You remember the period when it was in the thousands. We remember the 400s and 500s. It's currently at the 300s, the country risk premium has come down to the 200s level. This inevitably reduces our borrowing costs. Those who lend to us first look at the country's risk, then the bank's risk. In that sense, they look at both, but a well-managed economy, the improvement in the country's economy reduces our costs. Although it is capital-like, this credit we use, which carries the risk of capital to those who give it to us, we completed it at a quite attractive rate. We were able to find a capital-like credit with an interest rate close to 7.5% for a 7-year term. In that sense, it was a valuable borrowing and a borrowing that could be qualified as good for the sector and would also encourage other banks.
So, the first blue bond issuance is also an important step. Let's touch on that too, I think. For sustainable financing. Now, this is an important choice. What does it show for the coming process? What is a blue bond? What did it bring?
Of course, until today, as you know, we have always issued green bonds, nature-friendly, environmentally friendly, related to sustainability, and used them in sustainability issues. With this first blue bond issuance, we have now brought the seas into the position of an important environmental actor, and we have found a resource that we can finance for keeping the seas clean, cleaning up pollution in the seas, and making waste management more correct for companies that give waste to the seas. It was the first step taken for the seas in Turkey. We have also opened the way for blue bonds. In that sense, we had done an example of green bonds that brought it down to the smallest investor. With a 1,000 lira thing, people could become partners in green bonds in our 100th year. Now, with this blue bond, we have achieved another first.
Now, let's summarize the financials briefly like this. We will do it briefly, dear viewers. Balance sheet, banking model, and if we have time later, we can also do leadership and entrepreneurship. Mr. Hakan, size or profitability?
It made you think, didn't it?
Yes, it did. Because sizes that are not fed by profitability don't really benefit anyone, so profitability is more important. As a country, I think we need this too. The most important thing that brings profitability is our productivity increase. And there, let me give you some good information. Between 2021 and 2024, we used to say that total factor productivity in Turkey wasn't changing. The average total factor productivity was 1.5. For the first time in 2025, this rose to 2. Therefore, we are going through a period where we are also increasing total factor productivity. That is, when there is a squeeze, when there is no profitability, productivity started to increase. In that sense, since profitability also increases productivity, I say profitability. So, is capital strength a shield or an opportunity?
An opportunity.
