Turkish Banks Face Profit Squeeze as Loan Rates Jump

Turkey’s banking sector has entered 2026 navigating tighter financial conditions, rising borrowing costs, and mounting regulatory pressure. According to the latest monthly outlook from BBVA Research, the end-of-year lending campaigns have triggered a sharp upward adjustment in loan rates, particularly in the consumer segment. Excluding mortgage loans, borrowing costs surged by nearly 1,300 basis points, signaling a decisive shift in credit dynamics.

The report paints a nuanced picture of a sector balancing policy-driven discipline with profitability concerns. While disinflation remains the overarching policy objective, recent data suggests that the road ahead may be longer and more complex than initially anticipated.

Consumer Loan Rates Lead the Climb

As promotional campaigns faded at the end of 2025, banks began recalibrating their pricing strategies. The adjustment has been especially visible in consumer lending. The nearly 1,300-basis-point increase in non-mortgage consumer loans reflects both tighter liquidity conditions and cautious expectations regarding inflation.

BBVA Research emphasizes that the weakening momentum in the disinflation process has left little room for meaningful declines in Turkish lira funding costs. In other words, funding pressures remain elevated, limiting banks’ flexibility in reducing deposit and lending rates in the short term.

Although positive CPI surprises in November and December had briefly fueled optimism, inflation readings in January and February reinforced concerns about resilient domestic demand and deteriorating pricing behavior. These developments suggest that a rapid easing cycle in TL deposit and loan rates is unlikely in the near term.

Net Interest Margins: Improvement, But Slower Than Expected

One of the most closely watched metrics in banking performance is the Net Interest Margin (NIM), a key profitability indicator calculated as the difference between interest income and interest expense. BBVA projects that improvements in NIM will materialize more gradually than previously forecast.

The persistence of elevated funding costs, combined with regulatory constraints, appears to be slowing margin recovery. While the sector had anticipated a stronger rebound in spreads as inflation cooled, recent macroeconomic signals suggest the normalization process may extend into 2026.

For investors and analysts, this signals a period of moderated profitability rather than a sharp rebound.

Profitability Under Pressure: RoE at 25.6%

The final quarter of 2025 delivered another challenge. BBVA noted that one-off tax expenses recorded during the fourth quarter significantly weighed on net profits. As a result, the expected year-end recovery fell short of market expectations.

Despite these pressures, the sector’s Return on Equity (RoE) stood at 25.6%, a level that remains relatively strong by international standards. However, sustaining this level in 2026 may prove challenging amid tighter macroprudential policies and restrictions on loan growth.

The outlook suggests that profitability will increasingly depend on operational efficiency and strategic portfolio adjustments rather than rapid credit expansion.

Credit Card Restrictions Add Another Layer of Strain

Recent regulatory tightening targeting credit cards is poised to reshape revenue streams. According to the report, unused credit card limits account for approximately 80% of total limits, a significant buffer that historically supported both net interest income and fee-based revenues.

New credit card utilization limits are expected to weigh on transaction volumes and, consequently, on net interest income and fees and commissions, which are vital income pillars for Turkish banks.

Additionally, stricter rules surrounding overdraft accounts are anticipated to exert downward pressure on profitability. However, BBVA suggests that growth in other general-purpose consumer loans—those outside the imposed growth caps—could partially offset these negative effects.

Macroprudential Policies Remain a Decisive Force

As Turkey continues its disinflation policy path, macroprudential measures remain central to credit market dynamics. BBVA underscores that credit growth caps continue to play a determining role in shaping loan rate volatility.

Any new regulatory steps are likely to place further strain on banks’ net interest income and fee-based performance. In an environment where both funding costs and compliance burdens remain elevated, strategic balance sheet management becomes essential.

Banks are therefore operating within a narrow corridor: balancing regulatory adherence, funding realities, and the pursuit of sustainable profitability.