Turkish Isbank CEO sees challenges ahead, interest rate cut in November

Turkish banks will pay the price for that throughout next year as the country’s economic recovery challenges persist, Isbank’s CEO said in an interview. He added that he expected the central bank to start cutting interest rates in November.

Turkey’s largest private bank by assets plans to expand into payment systems infrastructure, digital platforms and service banking, where it plans to forge new partnerships and make foreign acquisitions, Chief Executive Hakan Aran told Reuters.

The growth plan comes as Isbank celebrates its 100th anniversary and Turkish authorities seek to rein in rising inflation with high interest rates and other tightening measures that have squeezed financial sector balance sheets.

“I think the difficulties will continue throughout 2025. We will all continue to pay the price for ensuring price stability and lower inflation,” Aran said in an interview at Isbank’s headquarters in Istanbul.

“Banks will overcome this process by deteriorating their net interest margin this year and worsening their asset quality next year.”

Aran added that the deterioration in asset quality had already started in July and that the net interest margin was under serious pressure.

“Banks’ return on equity is declining. If we had to have ‘inflation accounting,’ many banks would probably be making losses,” he said. “Banks seem to be profitable right now because there is no inflation accounting.”

Last year, the government excluded banks from companies using inflation-adjusted accounting methods on their balance sheets over concerns this would result in losses in tax revenue.

The central bank has raised the interest rate from 8.5% to 50% since June last year to reverse years of unorthodox easy-money policies under President Recep Tayyip Erdogan, who backed the reversal.

Inflation fell below 62 percent last month and is expected to fall further, which could lead to interest rate cuts in coming months.

Aran predicted the central bank would begin easing monetary policy in November, cutting by 250 basis points, roughly in line with analysts’ expectations. The rate would fall to 45 percent by the end of the year and to 25 percent by the end of 2025, he predicted.

Isbank CEO on annual inflation

September inflation data, released in early October, “will most likely show annual inflation below 50 percent, while the interest rate will remain above that level. So I think there could be a gradual rate cut starting … in November,” Aran said.

Inflation has been well above the central bank’s 5 percent target for years. Aran predicts a drop to about 42 percent by the end of the year and 20 percent a year later, slightly higher than official forecasts.

He said household price expectations should approach the central bank’s much lower expectations in 2025.

Aran said the central bank would maintain its tight monetary policy unless there were “extraordinary” risks or a renewed dollarization trend.

He predicts the lira will weaken to 38 to the dollar by the end of 2024. On Friday, it hit 34 for the first time.

Founded in 1924 to finance industrial development and increase household savings, Isbank now has a market value of almost $10 billion. It has ambitious international plans.

Aran, who has been serving as CEO since 2021, said the lender aims to be among the top banks in the world in terms of geographic footprint and number of customers served.

He added that Isbank is considering possible acquisitions and partnerships related to digital banking and payment systems abroad, especially in the UK and the European Union.

In the medium term, he said, a significant portion of revenue will come from payment infrastructure, digital banking and services. Isbank also aims to become a regional financial technology hub, bolstered by the recent merger of its Moka Payment Institution subsidiary with Birlesik Odeme Hizmetleri, he said.

“Currently, 90 percent of revenue comes from traditional banking and 10 percent from these new platforms,” Aran said. “We’re taking steps to bring those numbers closer together over the next five years.”

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