Bloomberg Intelligence: Turkish banks ready for a possible shock

Bloomberg Intelligence evaluated the possible effects of the policies expected from the new economy management on banks. In the report, it was predicted that the recent depreciation of the Turkish lira against the dollar by more than 15 percent would have a significant impact on the capital of Turkish banks. It was stated that the increase in the exchange rate could lower the capital adequacy ratio of the four big domestic banks by 65 basis points. It was stated that the probability of TL depreciation increased.

It is predicted that the rise in bond rates may cause a loss of 200 billion liras to banks with large amounts of government bonds in their portfolios, and this may cause a 200 basis point decrease in the capital adequacy ratio of banks to 15 percent.

In the Bloomberg report, it was emphasized that the crisis management skills of Turkish banks will be tested this year, while referring to the 2018 crisis, it was emphasized that banks were not unfamiliar with interest-based shock therapies. In the said period, the Central Bank of the Republic of Turkey (CBRT) tripled the policy rate to 24 percent and limited the depreciation of TL to 40 percent.

The market expects the interest rate to be increased from 8.5 percent to 20 percent at the next meeting, and the policy rate to reach 30 percent at the end of the year. According to corporate analysts, although the market prefers a quick return to orthodox policies, growth and employment can remain a priority for the government.

Bloomberg Economics revised its policy rate expectation for the end of 2023 to 24 percent. However, it was stated that the pace of tightening in monetary policy and a return to orthodox policy are critical to bring back confidence and predictability in order to control inflation.

The general expectation is that if the interest rate is around 14-18 percent, the growth will be around 2.7-3.0 percent in 2023-2024.