Turkish banks will face challenges throughout next year as the country navigates its economic turnaround, according to the chief executive of Işbank, who expects the central bank to start cutting interest rates in November.
CEO Hakan Aran also revealed that Türkiye’s largest private bank by assets plans to expand its presence in payment system infrastructure, digital platforms and service banking, with new partnerships and acquisitions planned abroad.
The growth plan comes as Işbank marks its 100th anniversary and Turkish authorities seek to stamp out soaring inflation with high interest rates and other tightening measures that have squeezed financial-sector balance sheets.
“I think difficulties will also continue throughout 2025. We all will continue to pay the price for the sake of ensuring price stability and lowering inflation,” Aran told a Reuters interview at Işbank’s Istanbul headquarters.
“Banks will overcome this process with a deterioration in net interest margin this year, and a deterioration in the asset quality next year.”
Asset quality already began eroding in July, while net interest margins are under serious pressure, Aran added.
“Banks’ return on equity is decreasing. If we were mandated to do ‘inflation accounting,’ many banks would probably be reporting losses,” he said. “Banks seem to be profitable right now because there is no inflation accounting.”
Last year, the government excluded banks from companies applying inflation-adjusted accounting methods to their balance sheets because of concerns that it would result in tax revenue losses.
Since June last year, the central bank has hiked its policy rate to 50% from 8.5% to reverse years of easy-money policies.
Inflation dipped below 62% last month and is expected to continue easing, setting up potential rate cuts in the months ahead.
Aran predicted the central bank would begin easing monetary policy in November with a 250 basis-point cut, roughly in line with analysts’ expectations. The rate would fall to 45% by year-end and to 25% by end-2025, he predicted.
Annual inflation
September inflation data, released in early October, will “most probably see annual inflation below 50%, while the policy rate would remain above that. So I think there could be a gradual rate cut starting … in November,” Aran said.
Aran predicted a drop in inflation to about 42% by the end of this year and 20% a year later, a bit higher than official forecasts.
He said household price expectations should converge toward the much lower central bank expectations in 2025.
The central bank will maintain its tight monetary policy stance unless there is an “extraordinary” risk, or re-emergence of a dollarization trend, Aran said.
He sees the Turkish lira weakening to 38 to the U.S. dollar by 2024. It touched 34 for the first time on Friday.
Işbank, founded in 1924 to primarily fund industrial development and expand household savings, now has a market value of nearly $10 billion. It has ambitious international plans.
CEO since 2021, Aran said the lender aims to be among the top banks globally in terms of the breadth of geographies in which it operates and the number of clients it serves.
Işbank is evaluating possible acquisitions and partnerships related to digital banking and payment systems abroad, especially in the United Kingdom and European Union, he said.
In the medium term, he said, a significant portion of income would come from payments infrastructure, digital and service banking. Isbank also aims to be a regional fintech hub, boosted by the recent merger of its subsidiary Moka Payment Institution with Birleşik Ödeme Hizmetleri, he said.
“Currently, 90% of income comes from traditional banking and 10% from such new platforms,” Aran said. “We are taking steps to bring this ratio closer to each other in the next five years.”
