World Economy

Turkish Banks May Face Serious Profit Problems

Turkish Banks May Face Serious Profit ProblemsTurkish Banks May Face Serious Profit Problems

Turkey’s banking system may face “serious problems” with profitability if loan demand continues to weaken, Huseyin Aydin, the chief executive of state-run Ziraat Bank and the head of the Banks Association of Turkey, said on Thursday.

“Some have talked about a drop in the loan offering appetite of banks. Here the point is actually a weakening in loan demand. Banks need to raise revenue to strengthen their equity capital. They need to create a volume for when profit margins decline to be able to make returns. Turkey’s banks may face serious problems in profiting if the demand stays low,” Aydin said in a meeting in Istanbul, Reuters reported.

“There isn’t a decrease in our appetite in 2016, but there is a drop in loan demand,” he added.

Aydin’s words came after Prime Minister Binali Yildirim criticized lenders in a speech last week, asking them to give voice to the real sector and stop loan sharking.

The treasury will not take money from banks forever, Yildirim said, adding that banks’ main mission must be to pour money into the real economy.

“Turkey has been overcoming exceptional conditions. Despite the recent failed coup attempt, its economy has not deteriorated. On the contrary, our economy has been growing while the world economy shrinks,” he said, adding that applying higher interest rates would bring nothing but “speculative gains.”

At the same meeting, Garanti Bank CEO Fuat Erbil said the Turkish economy had remained resilient despite many unexpected domestic and foreign developments, but loan growth has however not been at desired levels.

“Consumer loans have dropped in real terms. Another key factor which marks this year is a slowdown in investment loans,” Erbil added.

However, he emphasized that there has been a strong growth in deposits for the first time in a while.  

 Lira at Record Low

Turkish lira slipped to a historic low against the US dollar Friday as anticipation of a rate hike from the Federal Reserve saw the American currency appreciate across the globe.

It dipped to 3.127 against the US dollar.

The currency of the world’s largest economy strengthened considerably recently with the US dollar index, which measures strength of six major currencies against the dollar, hitting a high of 98.50 points in the last eight months.

Analysts believe the drop was largely due to the rising geopolitical tension in its region, especially in Iraq and Syria, besides the surging likelihood of a rate hike from the US Federal Reserve, which would limit the capital flow to emerging economies such as Turkey.

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