Turkey’s loan boom is a thing of the past

Cover chart:  13-week moving average growth rates of loans by lender category

Red:  Total loans, Green:  Private lenders, Blue:  state lenders


According to BRSA weekly bulletin for the week of November 20, total loans were flat in TL terms w/w, for a second week in a row. TL loans increased by 0.4% w/w, while FX loans decreased by 0.2%.


Growth of TL loan book reached 42.3% y-t-d with state and private banks TL loan growth growing 55% and 32%, respectively. However, the preferred measure of Central Bank of Turkey, reveals a very sharp slowdown, as measured by 13-week moving average loan growth. Annualized total loans are now growing at a pace of 7.4%, far below the going rate of CPI inflation at 11.9%.  Consumer loans are growing at par with CPI at 12.8%, while strangely business loan growth decelerated to 2.8%.



As expected, recent macro volatility caused higher rates for TL loans, which led to the slowdown in lending activity. With BRSA’s cancellation of Active Ratio requirement, which had earlier pushed TL loan growth,  the general slowdown is  expected  to continue in coming weeks.


The deceleration in new loans makes it harder for banks to hide non-performing or delinquent loans in the balance sheets.  Currently at 4.2% of total loans, non-performing loans could easily double within a year.  Much depends on whether Turkey’s new economy managers Treasury Minister Mr Lutfi Elvan and Central Bank governor Naci Agbal would pressure BRSA to tighten macroprudential rules.


Turkey badly needs an independent  audit of loan risk, or a genuine stress test to assess the solvency and capital adequacy of Turkish commercial banks. A state audit of state banks would also help immensely in revealing how badly their balance sheets have been damaged by the zest of former economy czar, Mr Albayrak to stimulate the economy through credit.


Turning to economic growth, it is nearly impossible to sustain the momentum of 3Q2020 without adequate loan growth.  However, in addition to doubling interest rates on most categories since the lows of summer, in tandem with CB tightening, banks are also tightening credit conditions, as Covid-19 restrictions reduce sales in service industries.


While putting a stop to reckless lending is good policy, it comes at a bad time.  Fewer loans will end the misery of zombie companies which thrived despite low sales, but it may also cause premature deaths among young, healthy growth firms.


Turkey will pay dearly for Mr Berat Albayrak’s Reign of Financial Terror.



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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.