TL Deposit Rates Hit Post-March Low as Credit Costs Remain Elevated

Data from the Central Bank of the Republic of Turkey reveals a distinct recalibration in the banking sector's interest rates as of late July, highlighting a widening cost gap between savers and borrowers. The sector is navigating a period where the easing in deposit funding costs is not translating into lower credit costs.

The Decline in Deposit Yield Thresholds

The figures indicate an acceleration in the decline of short-term TL deposit rates, testing the lowest levels seen since March. This downward movement in banks' funding costs exposes strategic shifts in liquidity management.

■The average simple TL deposit rate for 1-3 months fell to 39.6% as of July 31, marking the lowest level since March.

■After a volatile year, rates dipped below the psychological 40% threshold in the final week of July.

■This decline stands as a concrete indicator of diminishing returns for savers.

Resilience in Lending Rates

Contrary to the easing in deposit funding costs, banks’ persistence in maintaining high lending rates underscores that financial conditions remain restrictive and risk premiums are being kept elevated.

■Excluding credit deposit accounts (KMH), consumer loan interest rates stood at 51.1% at the end of July, maintaining their elevated trajectory.

■The spread between deposit and credit rates reflects the banking sector's aim to preserve profitability amidst tight liquidity conditions.

■These high costs in consumer loans are interpreted as a consequence of the tight monetary policy sustained to manage demand and combat inflation.

Burak Yalın Analysis: This retreat in deposit rates stems more from banks' efforts to optimize funding costs through active ratios and expectations rather than a significant easing in liquidity. However, the persistence of credit rates above 51% poses a serious risk, particularly for SMEs and commercial cash flow management. As the banking sector maintains controlled credit growth due to macroprudential measures and capital adequacy ratios, the transmission of lower deposit rates to lending costs is likely to remain limited in the near term. This situation delays expectations for a decrease in the real sector's financing costs.