Turkish banks face margin squeeze amid tightening policy – Fitch 

Turkish banks continued to face pressure on their margins in the second quarter of 2024, driven by stringent regulations and high interest rates, according to Fitch Ratings’ latest Turkish Bank Datawatch report.

The covered banks’ operating profit-to-risk-weighted assets ratio fell to 2.9 per cent in Q2 2024, down from 3.4 per cent in the previous quarter, as high lira deposit rates, loan growth caps, and inflation-led costs squeezed profitability.

Non-performing loan (NPL) ratios slightly increased to 1.8 per cent at the end of Q2 2024 from 1.7 per cent in Q1 2024, reflecting higher inflows and slower loan growth.

The NPL generation ratio rose to 1.1 per cent in Q2 2024, up from 0.5 per cent in the previous quarter. Despite this, loan impairment charges dropped to 31 per cent of pre-impairment operating profit, compared to 41 per cent in 1Q24.

The share of foreign currency deposits in the sector continued to decline, while foreign-currency funding remained stable at 18 per cent of total non-equity funding.

The report, which covers 13 banks representing 83 per cent of Turkey’s banking sector assets, highlights the impact of ongoing monetary policy tightening on the sector’s performance.