Turkey Government Pushing Lenders to Cut Rates on Consumer Loans

Turkey’s central bank is forcing commercial lenders to lower the interest rates they charge for consumer loans as a part of its efforts to bring borrowing costs closer to the official benchmark rate.

Lenders charging compound interest rates on consumer loans between 18.56% and 20.62% will be required to park at the monetary authority lira denominated government bonds worth 20% of the new credit they create, according to a central bank circular seen by Bloomberg News.

If banks charge a higher interest rate on the loans, the amount of government bonds they should lock at the central bank should equal 90% of the credit they create, making it prohibitively expensive for banks to extend loans with higher interest rates. The changes are effective immediately.

The central bank declined to comment.

The latest measure is part of the efforts by the country’s monetary authority to cut borrowing costs as it aims to bring consumer loan rates closer to to the benchmark policy rate of 8.5%. Similar steps in 2022 contributed to a rally in Turkish bonds, with the yields on both two and 10-year local government debt tumbling.

The weighted average interest rate on consumer loans has dropped to 24.72% from as high as 33.7% in July and is now at its lowest since Dec. 2021, according to official data for the first week of March. Still, the current level is about 30% above the maximum limit of 18.558% that will be free of further requirement by commercial lenders.