By Ebru Tuncay & Nevzat devranoglu

ISTANBUL (Reuters – Turkey’s State Banks are likely to reduce borrowing costs for loans by about 200 basis points starting Monday. The plan comes after last week’s surprisingly high interest rate reduction by the central banks.

Three big public lenders, Ziraat Bank and Halkbank, are likely to reduce rates for corporate, individual and mortgage loans. The sources spoke to Reuters under the condition of anonymity as they weren’t authorized to talk about it.

On Friday, a lender sent an email notifying staff of its plan to trim costs by around 200 basis points. This was viewed by Reuters. According to another senior banking source, state banks will reduce interest rates on Monday in an effort to match the central bank’s 200-basis point rate cut.

Ziraat Bank had no immediate comment. Halkbank did not comment, and Vakif Bank didn’t immediately reply to my request for comment.

Turkey Wealth Fund, the government’s investment fund for Turkey, did not comment immediately. Public data shows that it fully controls Ziraat Bank and 75% of Halkbank, as well as 36% of Vakif Bank.

The central banks declined to comment about the plans of state banks, or possible consequences.

A central bank’s policy of easing usually triggers lower interest rates, which stimulates the economy. However, the market reaction to the rate drop of 16% last week was more shocking than the most dovish forecast in a Reuters survey.

The lira fell to an all-time low against the dollar, and benchmark yields were boosted. This included a leap in Turkey’s 10-year bond to 20.53%.

The market response last week suggested that the banks of the major states will not follow the central banking. However, they may be reluctant to lend cheaper loans. And though a sharp drop in rates could help some businesses and consumers, many analysts say it also risks https://www.reuters.com/world/middle-east/eye-polls-turkeys-erdogan-may-regret-rate-cut-he-pushed-2021-10-04 exacerbating rising inflation and lira depreciation which could soon force the central bank to reverse course and hike again.

Analysts believe that President Tayyip Erdoan’s public calls for lower interest rates to increase credit and trade, in spite of inflation hovering at 20% last month, has tarnished the credibility of the central bank.

Sahap Kavcioglu the Governor has publicly stated that Turkey’s central banks independently set policy. The bank stated last week that it had reduced rates partly because of temporary inflation pressure.

Erdogan is a self-described enemy interest rates and has been replaced by much of the bank’s top leaders this year. Turkey’s central bank is the only one to cut rates, while most other central banks worldwide are increasing their interest rates in an effort to curb rising price pressures.

RISK PERCEPTIONS’

To ease the effects of pandemics, state banks increased credit in an aggressive way last year.

Some private lenders however, are wary of the risk involved in stimulating an economy which is forecast to grow at almost 10% this year.

Hakan Aran (chief executive at lender Isbank) stated in a Sept. 29 televised interview that credit costs won’t fall unless inflation gets under control.

Emre Perker, an Emre Peker director at Eurasia Group, said: “If state-run bank cut rates and turn off the consumer lending spigot… the additional Liras flooding system will only drive dollarisation – exacerbating economic and financial pressures.”

On Thursday’s policy statement, the central banking cited difficulties in obtaining commercial loans for business due to tight monetary policy.

The average rate on loans to the state bank has remained at around 20%, according to central bank data. However, one source said that it had been between 17.5%-18%. The three sources say these are the rates banks expect to reduce on Monday.

After a September 100-basis point cut, Thursday’s rate reduction was the second in two months by the central banks. Since September began, the rate of policy easing has seen the lira fall 13% against a dollar to reach an all-time low at 9.66 on Friday. Imports have driven inflation higher.

Fitch Ratings’ senior director for Turkey Erich Arispe told Reuters that Turkey’s jump in yields following Thursday’s rate reduction shows that Turkey’s “risk perceptions” play a part in the financing environment.

(Additional writing and reporting by Jonathan Spicer; editing by Daren Balt and Susan Fenton).