Turkish loan-to-deposit margins widest since global crisis

Turkish banks are charging more for companies to borrow, meaning the difference between the interest rate on corporate loans, which carry variable interest rates, and returns on deposits is now at the widest since the global financial crisis of 2008, Dunya newspaper reported.

Banks are charging companies as much as 40 percent in annual interest to borrow, with the average rate standing at about 33 percent. Meanwhile, deposit holders are receiving interest payments in the twenties, the business daily reported.

The margin between loans and deposits was about three percentage points in the second quarter, with commercial loan rates at 17 percent annually and deposits returning 14 percent, Dunya said citing analysts.

A currency crisis that saw losses for the lira exceed 40 percent this year is putting added stress on Turkey’s banking industry, which has lent tens of billions of dollars to companies who are now finding loans increasingly difficult to repay. Inflation has surged to 17.9 percent, forcing the central bank to increase its lending rate for banks to 24 percent, adding to the stress.

Banks are making losses from some consumer and investment loans, which carry a fixed rate of interest for the full term, so are raising commercial lending rates to compensate, the newspaper said. Bad debts and costs associated with collecting troubled loans are also weighing on banks’ balance sheets, it said.

Meanwhile, consumers are not taking out new loans because rates have also surged. That is leading to a contraction in overall borrowing, Dunya said.