USD/TRY: New headwind for the lira, CBRT imposes penalty on high lending rates – Commerzbank

The Central Bank of the Republic of Türkiye (CRBT) has imposed penalties on high lending rates. Economists at Commerzbank expect this measure to add further pressure on the lira. 

Negative impact in the macro-prudential outlook for banks

“CBRT has formally lowered the annual compound reference rate for commercial loans by 100 bps (to 15.34%). Latest data show that the banking sector's weighted average commercial loan rate works out to c.21%, hence the penalty will not apply at large. But herein lies the problem: the penalty will specifically penalise charging a risk premium for riskier loans. This will interfere with safe pricing of risky loans.”

“At any rate, the mechanism introduces inefficiency in how banks would naturally price risk, and will negatively impact the macro-prudential outlook for the sector. This is negative for the lira exchange rate.”