The Financial Stability Report of the Central Bank of the Republic of Turkey (CBRT) for the first quarter of 2023 was published on the bank’s website.
In the report, it was stated that the downward trend in household indebtedness, which is quite low in Turkey compared to peer countries, continues, and it was noted that the majority of household financial debts belong to the low-wage sector with income volatility, which stands out as a factor that reduces the household-sourced credit risk on the banking system. .
In the report, it was stated that the weight of TL-denominated assets and non-deposit financial instruments in the financial asset composition of the households continued to increase, and it was emphasized that the rate of deposit liraization was in an increasing trend.
In the report, it was underlined that the increasing motivation of banks to realize the target of liraization in deposits indicates that this trend may continue, and said, “Household segments diversify their savings by increasing their investments in non-deposit financial assets such as stocks, mutual funds and pension systems.”
“Financial debt/financial asset ratio of the real sector fell to the lowest level in the last 10 years”
In the report, it was stated that the financial debt/financial asset ratio of the real sector fell to the lowest level of the last 10 years and the positive course in the liquidity, profitability and debt payment indicators of the firms continued.
In the report, it was stated that while the share of TL in the liabilities of the sector increased, the share of TL-denominated assets in the asset composition of the firms was increasing and the improvement trend in the total short-term Foreign Currency (FX) position was preserved.
In the report, it was noted that the decreasing trend in the number of companies using FX loans continues, “The ratio of companies’ FX indebtedness to be covered by their export revenues is increasing. These factors, which reduce the FX risk of companies, also limit the exchange rate risk of the real sector. In this period, also, with the effect of targeted loan policies, net exporting companies and companies in TL loans are used. It is observed that the share of SMEs is in an increasing trend. it was said.
In the report, which emphasized that the firm’s balance sheets are resistant to possible shocks with their strong liquid assets, it was announced that the profitability indicators of the companies listed on Borsa Istanbul (BIST) were above the historical averages and that, together with the decline in financing costs, the indicators for the solvency of the firms improved significantly.
In the report, it was noted that as a result of the credit policy implemented to support potential growth and the current account balance at sustainable levels, the targeted change in the credit composition took place.
“The share of targeted loans such as SMEs, tradesmen, agriculture, exports and investment in TL commercial loans continues to increase. This development contributes to the increase in the share of sustainable components in the growth composition and the decrease in the structural current account deficit. The meeting of loans with economic activity in a way that supports investment, exports and potential growth. It is of great importance and the effects of the measures taken are closely monitored. It is observed that the growth of consumer loans has started to slow down after the inclusion of consumer loans in the application of security facility according to interest rates. As a result of the steps taken to support the effectiveness of the monetary transmission mechanism, TL commercial loan interest rates have become prominently policy-based. converged to the interest rate.
“Asset quality indicators of the banking sector continue to improve”
In the report, it was stated that the asset quality indicators of the banking sector continued to improve, and that the NPL ratio continued to decline with the effect of TL loan growth as well as the flat course of the NPL balance, and the said improvement was seen in all loan sub-types and sectors.
In the report, which emphasized that the NPL ratio, as well as the loan ratio under close monitoring and the structured loan ratio, decreased in the current report period, “A significant portion of the loans under close monitoring consists of loans with no delays. The loan provision ratios, which banks started to increase due to prudence during the epidemic period, continue to increase.” expressions were used.
The report states, “The banking sector has strong FX liquidity buffers. While the share of external debt in banks’ funding composition has declined to historically low levels, the weight of deposits continues to increase.” In addition to the deposit-weighted funding structure, it was stated that the increase in the share of TL in the balance sheets supported the liquidity outlook of the sector.
“Banking sector profitability continues to support capital”
In the report, which underlined that banks maintain their durable balance sheet structure, it was stated that while the share of fixed-rate loans in banks’ balance sheets decreased, the trend towards long-term securities with fixed interest rates continued.
In the report, it is stated that the TL asset-liability maturity difference of banks did not show a significant change compared to the previous reporting period. it was said.
In the report, where the profitability of the banking sector continues to support the capital, the following was emphasized:
“CPI-indexed securities yields and funding costs, which remained at moderate levels throughout 2022, supported the profitability of the sector through the net interest margin channel. Net interest margin has flattened due to the rise in TL deposit interests in the last period. However, banks have strengthened their capital positions and exceeded legal limits. The excess capital and free reserves kept above the legal rates ensure that the banking sector is in a strong position against possible risks.”
“The steps taken to permanently increase the share of the Turkish lira in the financial system began to yield results”
CBRT Chairman Şahap Kavcıoğlu, whose views are included in the report, stated that all the steps they have taken since the beginning of 2022 within the framework of the Liraization Strategy have been created with a perspective that will ensure permanent price stability together with financial stability.
Pointing out that policies are implemented to permanently increase the share of the Turkish lira in the financial system and to ensure that all domestic investment and trade transactions are shaped around the Turkish lira, Kavcıoğlu stated that these steps have begun to yield results.
Kavcıoğlu stated that while the FX position balance of real sector firms improved with the liraization experienced in the balance sheets, the share of the Turkish lira in the financial asset composition of the households increased significantly. “The composition of the company has changed in the targeted direction and the share of net exporting companies and SMEs in total loans has increased. By ensuring that TL loan rates converge to monetary policy rates, companies’ access to finance has been supported and the efficiency of monetary transmission through the financing cost channel of companies has been strengthened.” made its assessment.
“The CBRT will continue to implement the Liraization Strategy with all its elements for permanent and sustainable institutionalization of price stability”
Emphasizing that the improvement in the asset quality of the banking sector is observed in all loan types and credit risk indicators, Kavcıoğlu reminded that the sector’s deposit-weighted funding composition, as well as strong liquidity buffers, support its resilience against possible liquidity shocks and that banks maintain their capital adequacy ratios above legal limits.
Underlining that the CBRT will continue to implement the Liraization Strategy with all its elements for the permanent and sustainable institutionalization of price stability, Kavcıoğlu said, “The development process in production and current account surplus capacity will be supported with policy interest rates, targeted credit and liquidity policies. “With these conditions, the current account balance will be brought into a structure compatible with permanent price stability. Liraization steps and diversified reserve management will continue to contribute to the establishment of financial stability with a Turkish lira focus.” said.