Record-low interest rate triggers rush for loans

ISTANBUL

A drop in interest rates is may also support the real estate sector, growing the loan volume, professionals say. Hürriyet photo

With Turkey’s benchmark bond yield sitting at a historic low, a loan rush has begun in the country.

Many indebted people are waiting in line to restructure their payback schedules, daily Hürriyet reported yesterday, as economists foresee a housing sector expansion with low-interest-rate mortgages.

The drop in loan rates will increase for some time due to intra-bank competition, said Murat Aysan, general manager of the property developer DD Mortgage.

“There has been a boom particularly in the last two weeks in debt restructuring,” he said, adding that there were 1.2 million open loan credits in Turkey. “Some one-third of these people are in a position to benefit from the loans. The competition may become stronger in December, when the banks are finalizing their balance sheets,” he said.

Credit volume jumps

According to Aysan, however, the drop in long-term loan rates is still limited.

The Central Bank might further drop its benchmark rate at its meeting on Dec. 18.

According to Central Bank data, the loan volume of banks increased $5.2 billion in the week ending Nov. 16 to $725.7 billion, as the majority was in Turkish Liras.

Indeed, the ongoing drop in interest rates has already launched loan growth. The Banking Association’s recent data reflected that credit volume increased 22 percent in the third quarter from the same period a year earlier.

The downward trend in interest rates will probably end soon, according to Taner Berksoy of Istanbul-based Okan University. “I do not foresee further large drops in interest rates,” he told Hürriyet. “Because the real interest rate is close to zero, I do not think this will last long.

Erhan Aslanoğlu of Marmara University agreed on the short life of low interest rates, saying Turkey had become an address for investments in a period of high global liquidity, after Fitch’s sovereignty upgrade on Nov. 5 to “investment” level.

Yields on Turkey’s benchmark two-year bond fell to 5.93 on Nov. 30, a historic low.