Moody's backs Turkish Central Bank's lending rate cut

ANKARA

The Turkish Central Bank’s recent cut to overnight lending rate is likely to boost the banks’ profitability in the short term, Moody’s said in its latest credit outlook report Monday.

According to the report, “Given that the Turkish banks’ deposits tend to be predominantly shorter term [up to three months] compared with longer-term bank assets, the banks’ lower funding costs will benefit their net interest income.”

In its last meeting, the monetary policy committee of Turkey’s central bank introduced a 50 base point rate cut to overnight lending rate, from 10.5 percent to 10 percent, while leaving the policy rate at 7.5 percent and the overnight borrowing rate at 7.25 percent.

However, the international rating agency noted that the financial fundamentals of Turkish banks were still likely to be pressured due to an economic slowdown and dependence on confidence-driven wholesale market funding.

“Furthermore, given that foreign currency funding in the banking system accounts for up to 50 percent of total liabilities, the Turkish lira exchange rate has a direct bearing on banks’ profitability,” the report said.

“If the Turkish lira is pressured by expectations of a further interest rate reduction, it could reverse the benefits to the cost of funding which are due to the rate cut,” it added.

ANKARA

The Turkish Central Bank’s recent cut to overnight lending rate is likely to boost the banks’ profitability in the short term, Moody’s said in its latest credit outlook report Monday.

“If the Turkish lira is pressured by expectations of a further interest rate reduction, it could reverse the benefits to the cost of funding which are due to the rate cut,” it added.