Financial Stability Report and risks
Although the Central Bank's latest report conveys positive messages on the surface, the fine print points to risks. Following the currency volatility and interest rate hikes after 19 March, the fragile structure could deepen further in the event of a possible recession.
We have the May 2025 edition of the Central Bank of the Republic of Turkey (CBRT) Financial Stability Report, which is published twice a year. As expected, the report conveys the message that the economy is on track and that the bank has successfully managed the issues in the financial system through its decisions and regulations. However, upon closer examination of the text, we can clearly see the vulnerabilities and potential risks in the system between the lines. Here are some key points that caught our attention:
• The two fastest-growing components of household financial liabilities are non-installment credit card expenditures (BKK) and credit deposit accounts (KMH). The total of the two reached 1,365 + 537 = 1,902 billion TL as of March 2025. This data shows that people are borrowing to meet their basic daily needs because they cannot make ends meet. This is because instalment payments, which are mostly used for durable consumer goods, appear to be stagnant.
• Interest rates on consumer loans increased by 10 percentage points after March 2025, reaching 73%. The annual compound interest rate for KMH and BKK cash withdrawal transactions is 80%.
• The ratio of the real sector's financial liabilities to GDP declined from 29.1% to 27.1% between March 2024 and March 2025. This trend is reflected in a 3.1-point decline in TL loans, from 16.9% to 13.8%. Foreign currency loans, on the other hand, increased from 115.8 billion dollars to 160.8 billion dollars within a year. These figures point to both a general credit crunch and an increase in foreign currency debt, making companies more exposed to exchange rate risk. The warning is that there is an increased likelihood of a recession in the coming period.
• There has been a significant deterioration in the profitability, liquidity, and financing cost coverage indicators of publicly traded companies. For example, the ratio of net profit to net sales has fallen from 6.5% in 2023 to 3.5% in 2024 and 3.1% in the first quarter of 2025. The liquid asset ratio has fallen to 17.8% in 2025, and the financial expense coverage ratio has dropped to 1.5. The real-world implications of these technical data include the halting of investments, the widespread layoff of workers, and the inability of companies to repay their debts to banks.
• In the individual loans segment, the ratio of overdue receivables (TGA) in consumer loans has risen to 4.7%, and to 3.9% in BKK. In September 2024, the Central Bank of the Republic of Turkey (TCMB) introduced differentiated maximum contractual interest rates for credit cards based on the outstanding balance, aiming to encourage a reduction in credit card debt. The ratio of loans with delayed payments—less than 30 days, 30-60 days, and over 61 days—reached 5.4% for consumer loans and 5.1% for BKK. In the first quarter of 2025, the TGA amount for individual loans reached 148 billion TL. There are also signs of an increase in the transition to TGA in SME loans.
• Between September 2024 and March 2025, the restructured loan balance under close monitoring increased by 41 billion TL to 72 billion TL, while the BKK balance increased by 53 billion TL to 107 billion TL. The ratio of total debt with at least one day of delay to the total BKK balance has risen to 27.3%.
• With the Imamoğlu operation on 19 March, the shift towards foreign currency began, and by the end of 2024, an increase of 34.6 billion dollars was observed in foreign currency (FC) deposits until 17 April 2025. When adjusted for currency exchange rates, the change in foreign currency deposits stands at 18.1 billion dollars, driven by the appreciation of gold and the euro against the dollar.
• The investment vehicle showing the fastest growth in recent periods is investment funds, whose portfolio value has reached 5 trillion TL. Since June 2023, the portfolio value of investment funds has increased by approximately 4 trillion TL. During this period, the size of free foreign exchange funds has risen from 1.3 billion dollars to 49 billion dollars. Thus, it can be said that investment funds have become an important pillar of dollarisation. There was a significant outflow from money market funds during the 19 March process. This was due to the wave of sales in government bonds, which also dragged down the value of these funds. At this point, the CBRT added 59.7 billion TL worth of TLREF (Turkish Lira Overnight Interest Rate) indexed and 64 billion TL worth of fixed coupon DİBS securities to its portfolio through direct purchase auctions, effectively conducting a rescue operation.
• Following the coup attempt on 19 March, the transmission mechanism pushed up all interest rates with the increase in the overnight lending rate, followed by the policy rate. Consumer loan rates rose by 8.5 points, commercial loan rates by 8.9 points, and deposit rates by 9.3 points. DİBS yields also showed an upward movement of 680 basis points in short-term and 510 basis points in long-term.
These findings, taken from an 82-page technical report, reveal in figures how the financial system, which already had various vulnerabilities, was deeply shaken by the 19 March operation. In the coming period, if a potential recession scenario unfolds in the economy, it is easy to predict that the risk of more severe problems arising in both individual and commercial loans will increase, along with the danger of this spilling over into the financial system.
Note: This text has been translated from the original Turkish version titled Finansal İstikrar Raporu ve riskler, published in BirGün newspaper on June 10, 2025.
