Economy
Fitch sees modest margin recovery for Turkish banks as rate cuts loom
Türkiye’s banking sector may see a gradual recovery in net interest margins by the end of the year, aided by anticipated monetary easing from the country’s central bank, according to Fitch Ratings.
Ahmet Emre Kılınç, director of banks at Fitch, said on Tuesday that the credit ratings agency now projects the Central Bank of the Republic of Türkiye (CBRT) to lower its benchmark interest rate to 33% by year-end.
“As a result, we expect an improvement in banks’ net interest margins, although this recovery will be somewhat more modest compared to our initial projections at the beginning of the year,” Kılınç told Anadolu Agency (AA).
The CBRT pivoted to raising its key policy rate by 350 basis points in April to 46% and pushed the overnight lending rate to 49% after Turkish assets and the lira fell sharply after Istanbul Mayor Ekrem Imamoğlu was jailed pending trial over graft charges.
Before that, the bank had begun an easing cycle and gradually cut its one-week repo rate to 42.5% in March as inflation fell from the level of more than 75% that it reached in May 2024.
A sharper-than-anticipated slowdown in annual inflation to 35.41% has reignited speculation that the bank could resume rate cuts as early as this month.
The outlook for Turkish banks is shaped by domestic market developments and the impact of global customs tariffs, Kılınç said.
Before March, he noted, there was an expectation that continued rate cuts would support banks’ interest margins, but this has been somewhat delayed due to volatility in the domestic market.
Eyes on policy path
While the CBRT has signaled a cautious approach, analysts say the decline in inflation has provided some additional room for the bank to resume the rate cuts. Any shift, however, will likely be contingent on whether the overnight lending rate converges with the policy rate in the coming weeks.
The CBRT’s next monetary policy committee (MPC) meeting is scheduled for June 19, followed by another on July 24.
Last month, the bank kept its inflation forecast steady in its quarterly report, saying upward and downward risks balance out. Governor Fatih Karahan said the bank is ready to tighten policy if inflation worsens.
The bank’s year-end mid-point estimate stands at 24%, with an upper band of 29%. Turkish officials continue to emphasize that inflation will remain within this forecast band. Market surveys see a higher rate of around 30%, though estimates have recently been revised down modestly.
Kılınç highlighted that the persistence of high interest rates leads to increased risk costs.
“We have begun to closely monitor banks’ asset quality for the second half of the year. Currently, we believe that the risks to asset quality remain manageable for banks. In this regard, we maintain our neutral outlook for Turkish banks from the beginning of the year,” he said.
Fitch’s operating environment score for the Turkish banking sector remains positive, and the agency is keeping it unchanged, according to Kılınç.
“Profitability could improve this year. However, recent market volatility has somewhat disrupted the positive trajectory. Due to this volatility, Türkiye’s five-year credit default swap (CDS) had risen, but has since declined again to around 300 basis points,” he added.
External financing access remains intact
Despite concerns over short-term external debt levels, Turkish banks have retained strong access to foreign financing, according to Kılınç.
He pointed out that the high level of short-term external debt poses a refinancing risk, though he emphasized that this is not a new concern.
“Last year, market access was strong, with many banks issuing both Eurobonds and subordinated loans. Since March, syndication loans have been renewed at rates exceeding 100%, indicating that banks continue to secure external financing,” Kılınç said.
“However, long-term bond issuances have slowed, with costs being a key factor. In this context, banks are likely to wait for a more favorable environment before proceeding with further issuances.”
Kılınç also mentioned that global developments, including U.S. interest rate policy, geopolitical risks, and tariffs, could indirectly impact the outlook for Turkish banks. However, he emphasized that tariffs were unlikely to have a significant direct effect on Turkish financial institutions.
Türkiye and Saudi Arabia signed two memorandums of understanding (MoUs) on Tuesday aimed at strengthening cooperation in the railway and logistics sectors to enhance regional connectivity and trade links.
The agreements were signed in Riyadh following a meeting between Transport and Infrastructure Minister Abdulkadir Uraloğlu and Saudi Minister of Transport and Logistic Services Saleh bin Nasser Al-Jasser.
According to a statement from the Turkish Transport Ministry, one memorandum focuses on cooperation in logistics services, including the construction, operation and management of logistics centers.
The second agreement aims to expand collaboration across all areas of the railway sector.
Uraloğlu said uninterrupted trade and logistics flows have become increasingly critical amid ongoing regional tensions.
“At a time when our region is going through a sensitive period, ensuring the uninterrupted functioning of trade and logistics chains has become more critical than ever. Removing obstacles facing the transport sector is a strategic necessity,” he said.
The minister noted that bilateral road freight transport between the two countries had reached around 20,000 annual trips before 2012 but declined due to regional developments.
“Although current figures remain below those levels, our goal is to move cooperation beyond its previous peak,” Uraloğlu said.
He added that Türkiye is closely monitoring developments along routes passing through Syria, Jordan and Iraq, highlighting that two pilot freight operations from Türkiye to Saudi Arabia via Iraq had demonstrated the feasibility of the corridor.
Uraloğlu emphasized the importance of expanding both bilateral and transit transport, noting that transit routes provide access to European and Gulf markets and could strengthen regional trade integration.
He also stressed the need for secure and stable highway connections between the two countries and called for coordinated planning with regional partners to establish a future road map for transport cooperation.
On rail transport, Uraloğlu said a direct railway connection between Türkiye and Saudi Arabia would be of strategic importance. He also highlighted potential cooperation in high-speed rail systems and railway rolling stock.
Apple’s newly introduced AI Siri will have limited reach among many existing users, as older iPhone models are not equipped to run sophisticated AI features, Morgan Stanley said in a research note on Tuesday.
More than 850 million iPhones are incapable of running basic Apple Intelligence queries, and more than 1.3 billion iPhones cannot use advanced Siri features, the brokerage said.
The long-delayed Siri overhaul was the centerpiece of Apple’s annual Worldwide Developers Conference on Monday, with the world’s most valuable smartphone maker betting on the feature to keep pace with rivals including OpenAI’s ChatGPT, Google’s Gemini and Anthropic’s Claude.
Selling hardware on the strength of software is challenging, Morgan Stanley cautioned, even as AI accessibility ranks among the leading drivers of smartphone upgrades.
The bottleneck for the upgraded Siri and AI tools comes down to chip architecture and memory. Users need 12 GB of unified memory to run the most advanced Siri features, owing to the volume of on-device processing that Apple Intelligence requires, the brokerage said.
The Embassy of India in Ankara and the Consulate General of India in Istanbul announced Monday that they had convened the first meeting to launch the India-Türkiye Business Association.
According to an official statement, the meeting brought together Indian and Turkish investors with established business interests in both countries.
The statement said the association would be the first business-led initiative of its kind aimed at building a dedicated community to promote trade and investment between India and Türkiye.
Participants discussed drafting the association’s charter and defining its vision, while also exploring ways to create more structured engagement between the two business communities.
The association is expected to operate as a business chamber and will be formally launched in the coming months, the statement said.
India’s Ambassador to Türkiye Muktesh Pardeshi said such organizations can help businesses in both countries build stronger ties and networks, allowing them to navigate the commercial environment more efficiently and effectively.
He emphasized that the time had come for an active, business-led body that could advocate for greater trade and investment between India and Türkiye.
Bilateral trade between the two countries currently stands at around $10 billion a year, after reaching a peak of $13.8 billion in 2023.
The statement added that both sides share the goal of raising total trade to $20 billion.
India has identified Türkiye as one of its top 25 export markets, while Türkiye has included India among the 18 countries in its targeted distant countries strategy.
Türkiye announced on Tuesday the completion of another key phase in its first nuclear power project, with fuel loading tests carried out at the plant’s initial reactor unit.
The Energy and Natural Resources Ministry said a nuclear fuel assembly was symbolically loaded into the pressure vessel of Akkuyu’s first reactor as part of commissioning procedures.
Energy and Natural Resources Minister Alparslan Bayraktar described it as one of the most important stages in the commissioning schedule of the first unit.
Akkuyu is being built in the southern Mersin province by Russia’s state nuclear energy company Rosatom under a 2010 accord worth nearly $20 billion (TL 922.35 billion).
It will consist of four reactors with a combined installed capacity of 4,800 megawatts (MW), with each reactor capable of generating 1,200 MW.
The fuel loading tests were carried out for five days and were conducted under the supervision of the Nuclear Regulatory Authority (NDK), the Energy and Natural Resources Ministry said in a statement.
Sergei Butckikh, general manager of Akkuyu Nuclear JSC, said the process represented a comprehensive preparation and testing phase for the nuclear fuel loading process.
Butckikh said they tested procedures related to nuclear fuel under conditions as close as possible to actual operating conditions.
During the operation, the facility’s mechanical, hydraulic, and thermal systems, as well as its structural durability, were tested.
Next in line is the installation of the first reactor’s upper equipment.
Once assembly work is finalized, the unit will undergo cold and hot functional testing before entering operation.
Year-end power generation
“Our goal is to generate the first electricity from the plant by the end of the year, ushering Türkiye into a new era in nuclear energy,” Bayraktar said.
“We will make zero-emission, uninterrupted, and environmentally friendly nuclear energy one of the strongest sources in our country’s energy mix.”
Construction of Akkuyu began in 2018, and the plant was originally scheduled to start operations last year but faced delays due to multiple challenges.
Those included pandemic-related disruptions, delivery problems after Germany’s Siemens failed to supply key components and financial hurdles caused by Russian funds frozen abroad.
Bayraktar said in December that Russia had provided $9 billion in new financing for the project.
Once all four units are operational, Akkuyu is expected to supply from 10% to 15% of Türkiye’s electricity demand, making it the country’s largest single source of baseload power generation.
The plant is designed for a 60-year operating lifespan, with the possibility of extending operations for an additional 20 years.
Part of the electricity generated by the plant will be sold to the government under a fixed-price arrangement.
The facility is expected to help meet Türkiye’s growing power demand while providing stable generation that can complement the increasing share of intermittent renewable energy sources such as wind and solar.
Bayraktar said Türkiye would not stop with Akkuyu.
It is also pursuing plans to build two additional nuclear power plants in Sinop on the Black Sea coast and in the Thrace region. Negotiations for the projects are ongoing with South Korea’s Kepco and Canada’s AtkinsRealis.
Türkiye aims to reach 7.2 gigawatts (GW) of nuclear capacity by 2035 and 20 GW by 2050. It plans to complement the conventional nuclear plants with small modular reactors.
These ambitions will help “move forward with determination toward the goal of a fully energy-independent Türkiye,” said Bayraktar.
China’s exports gained speed in May, buoyed by strong demand for chips, autos and other high-tech goods fuelling the global artificial intelligence boom, giving policymakers some relief as energy price shocks from the Iran conflict weigh on broader demand.
A surge in global AI investment has helped the world’s top manufacturer offset the export hit many had expected from the Middle East turmoil. But signs are emerging that stockpiling linked to higher energy costs is fading, with prices rising and overseas buyers starting to run down inventories as they wait for a cease-fire.
Exports expanded 19.4% from a year earlier in U.S. dollar value terms, customs data showed on Tuesday, outpacing the 14.1% gain in April and a 15% rise tipped by economists.
Imports notched another strong month, climbing 27.4% versus a rise of 25.3% a month prior. Economists had forecast growth of 25%.
“Chip price increases continue to support exports, with memory prices rising 20% month-on-month, pushing integrated circuit export growth to 111% for the month,” said Xing Zhaopeng, ANZ’s senior China strategist.
China’s exports of automated data processing equipment soared 66.1% in value terms year-over-year, high-tech products rose 50.9%, and shipments of cars jumped 39%, the data showed.
“Looking ahead, the AI story is far from over – chips are rewriting China’s trade landscape,” Xing added.
The AI boom has driven strong demand for semiconductors powering data centers and advanced electronics, playing to China’s manufacturing strengths. But early signs suggest that momentum may be starting to fade.
Separate factory activity data for May showed a steep drop in new export orders from April’s two-year peak, when warehouse managers reported “booming” business amid a scramble by foreign factories to lock in supplies.
Strong exports powered China’s $20 trillion economy past forecasts in the first quarter, but signs of cooling momentum have reinforced concerns that fragile domestic demand leaves it exposed to weaker global conditions and increases the likelihood of further policy support.
Beijing is under growing international pressure to strengthen domestic consumption, as critics warn its heavy reliance on imported inputs and re-exports is distorting trade and squeezing other emerging economies out of higher-value manufacturing.
The Organisation for Economic Co-operation and Development (OECD) amplified that concern last week, noting in a report that nearly 60% of Chinese firms’ “market share gains can be explained by subsidies received.”
A new U.S. Federal Reserve (Fed) paper found that China’s trade surplus – measured against global gross domestic product (GDP) – has topped 1%, well above the peaks Japan and Germany hit in the late 20th century, and shows little sign of narrowing. That suggests persistent Chinese industrial overcapacity will reshape global manufacturing for years.
A closely watched meeting last month between U.S. President Donald Trump and Chinese President Xi Jinping helped cool tensions but produced no meaningful breakthroughs, whether on tariff disputes or cooperation over ending the Iran conflict.
China’s trade surplus came in at $105.43 billion in May, up from $84.8 billion a month prior and from a forecast of $92.1 billion.
Türkiye and Canada have agreed to launch exploratory discussions toward a free trade agreement (FTA), according to a joint statement from the countries’ trade ministries on Tuesday.
Turkish and Canadian trade ministers, Ömer Bolat and Maninder Sidhu, met to advance the strong and growing economic partnership between the two countries, the statement said.
“Building on the recent call between President Recep Tayyip Erdoğan and Prime Minister Mark Carney, the ministers reaffirmed their shared commitment to deepening the Türkiye-Canada trade and investment relationship,” it noted.
“To that end, they agreed to launch exploratory discussions toward a free trade agreement, a step that reflects the ambition of both countries to unlock the full potential of commercial partnership,” it added.
According to the statement, the ministers welcomed the recent expansion of the Air Transport Agreement, which strengthens connectivity between the two countries and opens new opportunities for travelers, businesses, and exporters.
“Enhanced air links will support stronger commercial ties and bring our economies closer together,” it noted.
Moreover, the statement said that the minister recognized the deep people-to-people ties that anchor the relationship between the two nations.
Additionally, it said that they have “identified energy as a pioneering area for expanded cooperation.”
“They have agreed to explore opportunities in renewable energy as both countries advance their clean energy transitions, as well as in nuclear energy, including the potential of Canadian CANDU technology to support Türkiye’s diversification goals.”
The statement also underscored that ministers welcomed “the prospect of closer collaboration in aerospace.” It also suggested that the ministers agreed to exchange visits and to look forward to “continued close engagement as Türkiye and Canada work together to expand trade, attract investment and deliver lasting benefits for the people of both countries.”
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