Turkish state-run banks may need taxpayer funds to meet losses – academic

Profits at Turkey’s state-run banks are dropping sharply due to cheap lending and the high interest rates they offer on deposits.

The banks may soon need support from taxpayers should the slump in profit turn into losses, said Şenol Babuşcu, the head of the finance and banking department of Başkent University in Ankara, according to the Sözcü newspaper.

“Treasury capital transfers may be required and that burden may fall on taxpayers,” Babuşcu said.

Profit at state-run banks has dropped by an annual 77.4 percent to 1.36 billion liras ($159 million) in the first four months of the year, Sözcü said, citing data from the nation’s banking watchdog. Net income at foreign-owned Turkish banks increased by 52.2 percent in the period, while local banks raised their profits by 34.2 percent, it said.

Turkey’s government has sought to engineer economic growth during the COVID-19 pandemic by instructing state-run banks to step up lending at below market rates. The banks have also kept interest rates on deposits at above the sector average to help attract funding and to support the lira, which has dropped to successive record lows.

Profit at the banks will continue to decline so long as they fail to lower interest rates on deposits, Babuşcu said.

Problems in the banking industry will persist so long as the government continues to pursue populist policies without battling inflation, said Hakan Kara, a former chief economist at the central bank, according to Sözcü.

Turkey’s largest three state-run banks are controlled by the country’s sovereign wealth fund, which is chaired by President Recep Tayyip Erdoğan.