Introduction to Turkish Banks and the US Federal Reserve
The US Federal Reserve’s expected rate cuts are likely to have a positive impact on Turkish banks. According to Burcin Ozan, the Chief Executive of HSBC Türkiye, further rate cuts by the Federal Reserve will reduce funding costs and boost valuations for Turkish banks. This is because a lower interest rate in the US will decrease the opportunity cost for international investors, making Turkish banks more attractive.
The Impact of Rate Cuts on Turkish Banks
The Federal Reserve’s first rate cut of 2025, which lowered the benchmark rate by 25 basis points to a range of 4%–4.25%, is expected to be followed by two more cuts of the same size at its remaining meetings in October and December. This easing cycle will open up space for Turkish banks to grow and become more profitable. The Central Bank of the Republic of Türkiye (CBRT) has also started to reduce interest rates, with the policy rate currently at 40.5%. This reduction in interest rates, combined with the gradual removal of macroprudential regulations, is improving efficiency across the sector.
Factors Contributing to Turkish Banks’ Growth
Several factors are contributing to the growth of Turkish banks. The program targeting macroeconomic balance brings stability, and the relaxation of regulatory measures allows banks to improve efficiency and profitability. The slowing inflation rate, which has eased to 32.95% in August, is also expected to continue declining. The CBRT’s policy rate is expected to end 2025 at 35.5% before easing to 23% in 2026. These conditions, combined with the expected rate cuts by the Federal Reserve, will make Turkish banks more attractive to investors and improve their profitability.
Profitability Expectations for Turkish Banks
According to Ozan, profitability in the banking sector is expected to rise beginning in the third quarter of 2025. This is due to the alignment of both global and local factors, including the expected rate cuts by the Federal Reserve and the reduction in interest rates by the CBRT. The bank’s balance sheets, where assets generally carry longer maturities than liabilities, will also support profitability in the period ahead.
Inflation and Policy Rate Projections
HSBC Türkiye economists forecast inflation to reach 31% by the end of 2025 and fall to 19% in 2026. The CBRT’s policy rate is expected to end 2025 at 35.5% before easing to 23% in 2026. These projections indicate that Turkish banks will continue to operate in a favorable environment, with low interest rates and declining inflation.
Conclusion
In conclusion, the expected rate cuts by the US Federal Reserve are likely to have a positive impact on Turkish banks. The reduction in funding costs and the boost in valuations will make Turkish banks more attractive to investors and improve their profitability. The alignment of global and local factors, including the reduction in interest rates by the CBRT and the slowing inflation rate, will also contribute to the growth of Turkish banks. As a result, profitability in the banking sector is expected to rise beginning in the third quarter of 2025, making Turkish banks an attractive investment opportunity.
