Back to T-bonds for Turk banks as loans slow
ISTANBUL (Reuters) – Turkish banks are expected to increase their holdings of government debt this year to offset a drop in loan growth, boosting demand for government paper, market experts say. After a 425-basis-point rise in benchmark borrowing rates last year to 17.50 percent, growth in lending has slowed along with the economy. The central bank has noted that after a rise in December, a consumer credit slowdown seen in much of the second half of 2006 continued in January. Turkey’s banks showed a 40 percent rise in combined total lending last year, down from 51 percent in 2005, according to banking regulator data, while consumer loans grew 61 percent last year, after 125 percent in 2005. «This year, retail loan growth won’t be more than 10 percent. The ups and downs in the currency and the effect on consumer confidence creates stagnation in demand for loans,» said Ayse Colak, deputy head of research at Tera Stockbrokers. She said a recovery in lending could come in the second half of the year – at the end of which some expect the central bank to start cutting rates – but not enough to boost profit as in previous years.» The banks, rightly, will turn toward the profits in their bond portfolio, bond returns will become important again.» That is likely to increase competition at regular bond auctions held by the Treasury, whose debt amounts to about half of gross national product. «If loan demand slows, then it is correct to suggest that demand for auctions (from banks) will rise. However, the interest rate level, funding costs and the type of auction will also be crucial,» one Istanbul-based debt trader said. By historic standards, interest rates are still low in Turkey. Focusing on Treasury debt marks a return to the past for banks which traditionally made most of their profit from high-yielding government holdings. Fierce competition in a market with low demand for loans will also push banks toward Treasury debt. «With the slowdown in loans, we don’t expect the same growth in profitability as we saw last year. In short it will be a competitive year,» Oyak Invest analyst Tamer Sengun said, estimating total loan growth of 22 percent this year.
