Akbank Joins Isbank in Home Loan Cut as Erdogan Push Obeyed

(Bloomberg) -- Akbank TAS, Turkey's second-largest lender by market value, followed rival Isbank in cutting mortgage rates for a second time in three months after the nation's president called on lenders to ease borrowing costs.

Turkiye Is Bankasi AS, as Isbank is more formally known, is reducing loan rates by 5 basis points to 0.90 percent a month, Chief Executive Officer Adnan Bali said at a news conference Monday in Istanbul, adding that he hoped others would follow suit. They did: just hours later, Akbank said it would match that rate on loans of up to two years maturity.

The banks were among a swathe of lenders that eased borrowing costs for homeowners in August after President Recep Tayyip Erdogan said resistance to rate cuts could be “treason.”

“We've room in our balance sheets for this,” Bali said. “We want to reinvigorate the national economy. The cut may narrow our net interest margins slightly but we can compensate it with readjustments in our funding costs.”

The lender also cut rates on loans to small-sized companies by as much as 26 basis points to 0.99 percent a month for maturities of up to 36 months, motor vehicle purchase loans by 8 basis points to 1.1 percent a month for up to 48 months and as much as 7 basis points on consumer loans with up to 48 months of maturities, Bali said, adding that the bank's decision was not taken in consultation with other lenders.

Central Bank

Isbank's cuts also followed a series of easing by the central bank. It's seeking to boost liquidity by reducing the amount of cash commercial banks must lock up with the bank, known as reserve requirement ratios, for lira, foreign exchange and gold holdings. Mehmet Ali Akben, head of the banking regulator BDDK, has also called on banks to slash mortgage rates by saving from “luxurious buildings” and refraining from the battle for deposits.

“We wanted to be proactive in cutting the risk premium for borrowers,” Bali said, saying banks should continue supporting the Turkish economy as political upheaval -- including a coup attempt against Erdogan in July -- are raising concerns about economic growth. “We are cutting because if our borrowers are strong we as lenders will also be strong.”

The average annual cost of home loans has dropped to 12.1 percent from 13.76 in early August since Erdogan's call.

“There's a disagreement between me and bankers on rates,” Erdogan said early August in a speech at the presidential palace to the Turkish exporters assembly TIM. “Our banking sector is strong, but if they try to turn this strength into an opportunity at a time like this, they'll find us against them."

Isbank shares fell as much as 0.6 percent to 4.97 liras in Istanbul.

Bali said non-performing loans in the banking industry will probably continue increasing “incrementally” in the next two quarters, especially in the tourism, energy and steel industries.

To contact the reporter on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net. To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Michael Shanahan