Turkish bank Yapi Kredi hiked rates on commercial loans on Monday by about 4 percentage points, the clearest sign yet that higher costs from a tumbling lira are reversing months of pressure from a government regulator to keep a lid on borrowing costs. Yapi Kredi, the country's fifth-largest bank by assets, said on its website the rate on commercial loans rose to a maximum of 33.95 percent. It declined to comment on the decision to raise the rate. A week ago it was 29.5 percent, a banker told Reuters.
The squeeze on lending could help stabilise the lira, which has fallen some 12 percent this year, after a full-blown currency crisis wiped out 30 percent of its value last year. But it could crimp any companies looking to hire or expand as Turkey's economy claws its way out of a recession.
"We might see more banks increasing their interest rates on loans this week," said a banking analyst, who requested anonymity and added that rates on cash deposits had also risen.
It was not clear which banks had raised interest on deposits, which would also support the lira, nor by how much. The weighted average deposit rate was 21 percent on April 19, up one percentage point from a week earlier, the central bank said.
A third source, the manager of a commercial loan portfolio at a small foreign bank operating in Turkey, said it had informed clients that rates on the loans would rise gradually this week.
A separate person with knowledge of Yapi Kredi's loan interest rate increase said the bank decided rates could climb even a bit higher without damaging clients "too much" - sentiment that reflects a broad rise in rates at Turkish banks that began just before nationwide local elections held on March 31.
"Information has been sent that the interest rates on commercial loans can be increased to up to 36-36.5 percent as of today without damaging the clients too much," said that source, who asked not to be named. In the immediate wake of last year's currency crisis, interest rates on commercial loans jumped to around 40 percent as banks scrambled to cover a spike in funding costs.
The rates have gradually eased since then, mainly due to instructions from the government's banking regulator, according to several banking sources. As of April 19, the Turkish banking sector's weighted average interest rates on commercial loans stood at 26.55 percent, according to central bank data, after having steadily climbed since mid-March.
The government and central bank used a number of "back door" tools to stem a renewed lira selloff that began a week before last month's local elections, which handed President Tayyip Erdogan's AK Party stinging defeats in Istanbul and Ankara.