What will be the value of the dollar at the end of the year? The CEO of İş Bank has a prediction.

The CEO of İş Bankası, Hakan Aran, made important statements in an interview with Reuters. Aran stated that the challenging environment in the economy will not end quickly and normalization will not happen immediately.

"WE WILL CONTINUE TO PAY THE PRICE"

Aran said, "I think that the difficulties will continue, albeit decreasing, until 2025. We will continue to pay the price. Because in order to achieve price stability and reduce inflation, this price will be paid. Banks will also pay this price and there will be a deterioration in asset quality. We will overcome this process with the deterioration in net interest margin this year and the deterioration in asset quality next year," he said.

Aran stated that the deterioration in asset quality in the sector started significantly in July and emphasized that it is currently mainly seen in retail. Aran also noted that the deterioration in the commercial side has started to emerge. Aran stated that the total amount of non-performing loans in the sector was 216.5 billion liras as of June 30, of which 147.9 billion liras came from commercial loans and 68.8 billion liras came from retail loans. Aran drew attention to the increase in non-performing loans in credit cards by saying, "The amount in retail comes from credit cards. This figure was 15 billion liras at the beginning of the year," he said.

Aran emphasized that the net interest margin of banks is under serious pressure. "Our equity profitability is decreasing. If we could account for inflation, many banks might be announcing losses. Currently, they appear profitable because there is no accounting for inflation," he said.

"INTEREST RATE CUTS WILL BEGIN IN NOVEMBER"

Aran stated that he expects inflation to be around 42% at the end of the year and around 20% in 2025, and he thinks that the expectations of households will be close to the market participants' survey expectations of the Central Bank within 2025. Aran, who expects the Central Bank of the Republic of Turkey (CBRT), which has kept the policy rate at 50% since March after a series of interest rate hikes, to start its first interest rate cut in November with a 250 basis point decrease, explained the reason for this expectation as follows: "Because the CBRT will see that inflation has fallen below the policy rate for the first time in October. When the September inflation is announced on October 3, a yearly inflation figure that is likely to fall below 50% will be seen and the policy rate will remain above inflation. I don't think a quick decision will be made in October, but I think a gradual interest rate cut process can start from the November meeting, and I think the policy rate can decrease to 45% by the end of 2024 and to 25% by the end of 2025."

HE REVEALED THE EXPECTATION FOR USD/TRY

Aran said that he expects the Central Bank to continue its current stance as long as no extraordinary risk arises, no new trend of dollarization starts, and trust in the Turkish lira continues. However, he pointed out that if there is a risk of dollarization, this process may be interrupted. Aran stated that they expect the USD/TRY, which is currently around 34, to be around 38 at the end of the year.

"WE WANTED THE RISK WEIGHT REGULATION TO BE REVIEWED"

Aran emphasized that banks have complied with the regulations introduced for price stability and the fight against inflation and that they are not very demanding. "Our biggest expectation at the moment is a development regarding risk-weighted asset regulations by the Banking Regulation and Supervision Agency (BDDK). We have conveyed our request as the Banks Association," he said.

Reminding that the risk weight of loans given during the period when foreign exchange was sought to be controlled was increased and credit growth was attempted to be limited, Aran stated that there is no need for this regulation as credit growth is already limited.

EXPECTATION FOR THE END OF THE YEAR IN FX-INDEXED DEPOSITS

Aran stated that the balance of FX-indexed deposits (KKM) in the sector has decreased to 51.6 billion dollars and said, "Considering that the sector balance was around 122 billion dollars, KKM has reached a manageable level today. We expect the balance of KKM to be around 20 billion dollars at the end of this year... (in this case) the TL-weighted structure will come to the fore in deposits," he said.