The future of Turkish banks seems to be uncertain and challenging according to Hakan Aran, the chief executive of Isbank, Turkey’s largest private bank. Aran predicts that challenges will continue throughout 2025 due to the economic turnaround in the country. These challenges are expected to impact various aspects of the banking sector, including net interest margins and asset quality. This will result in a deterioration in the financial health of banks, making it difficult for them to maintain profitability.
One of the major factors contributing to the challenges faced by Turkish banks is the high inflation rates in the country. The Turkish government has been implementing high-interest rates and tightening measures to combat soaring inflation. However, these measures have had a negative impact on the financial sector, leading to a decrease in banks’ return on equity. Aran pointed out that if banks were to follow inflation accounting methods, many of them would likely report losses, highlighting the severity of the situation.
In light of the current economic situation, Aran expects the central bank to start cutting interest rates as early as November. He predicts a 250 basis-point cut, with further reductions expected by the end of the year and into 2025. This move is aimed at easing monetary policy and stimulating economic growth in the country. However, it remains to be seen whether these rate cuts will be sufficient to address the challenges faced by Turkish banks and the wider economy.
Despite the challenges ahead, Isbank is focusing on expanding its footprint in payment system infrastructure, digital platforms, and service banking. The bank plans to form new partnerships and make acquisitions abroad, particularly in the United Kingdom and European Union. Isbank aims to become a major player in the global banking sector by diversifying its income sources and embracing digital banking. This shift towards digital transformation is crucial for the bank to stay competitive in an increasingly digital world.
While the future may seem bleak for Turkish banks, there are opportunities for growth and recovery. By embracing digital innovation and expanding internationally, banks like Isbank can position themselves for long-term success. With the right strategies in place, Turkish banks can overcome the current challenges and emerge stronger than ever. It will require a concerted effort from both the banks and the government to navigate the economic uncertainties and pave the way for a more stable and prosperous future for the banking sector in Turkey.