Bankers divided on whether CB cuts will translate into cheaper loans

Speaking to Today's Zaman, Eray Berberoğlu of Deniz Bank's Economic and Strategic Research Group said they were confident that the bank was going to be reducing rates. “The statement is one notch more dovish thus clearly implying the continuation of the easing cycle. Another 50 basis points cut in September seems very likely.”

Although most banks' interest rates are in the ballpark of 1.2 percent for long term loans, some banks have dropped their rates to as low as 0.82 percent per month or about 9.84 percent per year for loans with maturity dates of 24 months. CNBC-e reported Thursday that some of the banks that have dropped their rates below 1 percent have suggested that they will continue dropping rates for five to seven year housing loans in the coming months as banks begin to ratchet up the competition to attract new customers. For loans with 24 month maturity dates, Akbank has reduced its rate to 0.99 percent, Garanti Bank to 0.96 percent, İş Bankası to 0.82 percent, Yapı Kredi to 0.83 percent and AnadoluBank to 0.99 percent.

CNBC-e quoted Garanti Bank General Manager Ergun Özen as saying that “banks' long-term funding costs may fall down,” and that should this happen “it may well be reflected on the credits with five to seven year maturities.”

Deniz Bank General Manager Hakan Ateş was quoted as saying that the reason for banks rushing to compete in the real estate sector is that it is seen as being particularly attractive and that banks would like to increase housing loans in the overall loan portfolio. “The ratio of housing loans to GDP is 4 percent in Turkey, which is low,” he said. “Banks want to be active in this market. Consumers will increase their real estate investment in the crisis."

But while just about all agree that the central bank will continue slashing its overnight lending rates, not all agree that banks will be rushing to cut housing loan rates, given the longer-term nature of housing loans and the short-term nature of central bank interest rates.

“We need to look at the foreign funding costs and opportunities for the long-term funding requirements for long-term credits like housing loans, rather than looking at the central bank's interest rates,” said Garanti mortgage vice general manager, Umur Güven, emphasizing that “a decrease in the housing loans becomes possible only with the improvement in foreign finance markets. İsmet Erdem head of the housing financing marketing department at Yapı Kredi emphasized this point. “When determining the interest rate of a long-term credit, both its funding costs expected to occur during the whole life of the loan as well as the risk conditions [associated with the loan] are taken into account.” He said that “it is normal that there is a margin between housing loans and overnight bench mark interest rates.” He said therefore that the long-term housing loan interest rates which are around 1.20 percent may reach to around a probable 1.15 percent by the end of the year.

JCR (Japanese Credit Rating) Eurasia Rating Chairman Orhan Ökmen was quick to point out that “cuts in the interest rates do not affect the demand conditions. Its reflections are positive only on the costs of the Treasury's additional borrowing costs and the profitability of banks, but its effect is limited on growth.” He added: “In the medium and long term, it is inevitable that the interest rates will increase because we have entered a period where we have begun discussing the exit strategies of fiscal policies focused on budget deficits which were the result of the fiscal precautions against the global crisis.”

Meanwhile, Banking Regulation and Supervision Agency (BDDK) General Manager Tevfik Bilgin warned consumers yesterday to be especially cautious of hidden costs associated with applying for loans which have the potential to significantly increase the real cost of borrowing.