Turkish banks will pay the price throughout next year as challenges linger from the country's economic turnaround, the chief executive of lender Isbank said in an interview, adding he expects the central bank to begin cutting interest rates this November.
CEO Hakan Aran told Reuters that Türkiye's largest private bank by assets plans to expand its footprint in payment system infrastructure, digital platforms and service banking, where it will make new partnerships and acquisitions abroad.
The growth plan comes as Isbank marks its 100-year anniversary, and as Turkish authorities seek to stamp out soaring inflation with high interest rates and other tightening measures that have squeezed financial-sector balance sheets.
"I think difficulties will also continue throughout 2025. We all will continue to pay the price for the sake of ensuring price stability and lowering inflation," Aran said in the interview at Isbank's Istanbul headquarters.
"Banks will overcome this process with a deterioration in net interest margin this year, and a deterioration in the asset quality next year."
Asset quality already began eroding in July, while net interest margins are under serious pressure, Aran added.
"Banks' return on equity is decreasing. If we were mandated to do 'inflation accounting', many banks would probably be reporting losses," he said. "Banks seem to be profitable right now because there is no inflation accounting."
The government last year excluded banks from companies applying inflation-adjusted accounting methods to their balance sheets over concerns it would result in tax revenue losses.
Since June last year, the central bank has hiked its policy rate to 50% from 8.5% to reverse years of unorthodox easy-money policies under President Tayyip Erdogan, who supported the U-turn.
Inflation dipped below 62% last month and is expected to continue easing, setting up potential rate cuts in the months ahead.
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 fall to 45% by year end and to 25% by end-2025, he predicted.
