Turk real interest rates set to follow inflation below 10 pct

ISTANBUL – Real Turkish interest rates are set to dip to single digits for the first time in 2005, marking a step toward Turkey’s aim of developing a mortgage system, a banking executive said. A solid recovery from financial crisis and growing stability, buttressed by expectations that Turkey will start entry talks with the European Union in 2005, have pushed chronically high interest rates down sharply in the last two years. Hayri Culhaci, assistant general manager at leading Turkish bank Akbank, forecast rates would fall to an average 17 percent by December, compared with 22 percent last month, 29 percent at end-2003 and 50 percent at end-2002. «This would mean single-digit real interest rates for the first time… We envisage that this year real interest rates will fall to 9 percent,» Culhaci told Reuters in an interview late on Wednesday. Real interest rates are those adjusted for inflation, which was at its lowest level in some 30 years last year in Turkey. The consumer price index rose by 9.32 percent in 2004 and the government targets 8 percent inflation this year. Real interest rates currently stand at around 11-12 percent, compared with a level of some 30 percent during a major financial crisis in 2001 which triggered a deep recession. Consumer credit provided by Turkey’s banking sector surged by 88 percent to 15,000 trillion lira ($11.12 billion) in 2004 as a result of the release of demand for consumer goods and notably for cars, which had been delayed by the crisis. «The rise in consumer credit will slow down this year, linked to a reining in of these sectors. We expect growth of 46 percent in consumer credit in 2005,» he said. Total credit provided by the sector increased 28 percent in 2004 to 113,000 trillion lira ($83.79 billion), while deposits rose 8 percent to 212,000 trillion lira ($157.2 billion). Mortgage system eyed Turkey aims to introduce a mortgage system in line with a lasting decline in interest rates, sharply increasing the significance of housing credit which is currently limited to short-term borrowing at high interest rates. «Housing credit will have a very important place in the future of the Turkish banking sector. Housing credit in Turkey is today less than 1 percent of national income,» Culhaci said. By comparison, the level is some 7 percent in new EU member Hungary. The obstacles to introducing a mortgage system are Turkish lira funding levels, the legal infrastructure and the high level of interest rates, he said. «The first two problems can be solved and there is work on these subjects but interest rates are still high. Rates have to fall to a nominal 10-12 percent so that the monthly rate does not exceed 1 percent,» he said. «The year 2005 may not be a big year of change for housing credit. It will be a year of preparation for housing credit in 2006. We will see a pickup in 2006 and beyond as interest rates fall,» he said. Akbank, the biggest Turkish bank by market value, aims to become a market leader in this sector, he said. Akbank has a 13 percent market share in the housing credit sector, 27 percent in the automotive sector and 17 percent in consumer credit. Shares in Akbank, part of the Sabanci «SAHOL. IS» industrial group, were unchanged at 7.7 new Turkish lira yesterday.