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Türkiye’s inflation is projected to decline to 25% by the end of 2026, down from a forecasted 31–31.5% at the close of 2025, according to a new report by Spain-based lender BBVA. The anticipated drop in inflation is expected to create space for the Central Bank of the Republic of Türkiye (CBRT) to reduce its funding cost from the current level of 38% to 32% over the same period.
This gradual disinflation path is a central assumption in the analysts’ base-case scenario and is seen as a critical condition for the banking sector to achieve positive real returns on equity for the first time since 2019, BBVA Research said in its Türkiye Banking Sector Outlook report for December 2025. It added that the disinflation strategy continues to be supported by a combination of tight monetary policy and ongoing macro-prudential measures, which are expected to remain in effect through 2026.
The report emphasized that the banking sector’s operating environment began improving after September 2025, as lending margins expanded. Private banks, in particular, benefited from this shift, showing stronger performance in both net interest margins (NIM) and return on equity (RoE) compared to state-owned lenders.
BBVA noted that private banks boosted returns from customer loans more rapidly, supported by a slower decline in Turkish lira deposit costs compared to the Central Bank’s funding rate, enabling them to benefit more from margin improvements, particularly in the fourth quarter of 2025.
Total loan growth across the sector remained moderate, fluctuating within the 27–28% range since mid-2025, largely shaped by subdued demand for foreign currency–denominated commercial loans. BBVA noted that this level of credit expansion did not significantly deviate from the overall inflation trajectory, suggesting balanced credit dynamics.
The report said regulatory limits on loan growth continued to steer banks toward uncapped lending segments with stronger profitability, making high‑margin credit products a central focus across the sector.
As of October 2025, cumulative RoE among deposit banks was reported at approximately 26%, with private banks outperforming their public counterparts. BBVA attributed the gap primarily to differences in net interest income and non-interest revenues, such as fees and commissions.
The bank revised its 2025 year-end RoE forecast slightly upward, citing a stronger-than-expected recovery in margins during the third quarter. For 2026, RoE is projected to range between 28% and 31%, depending on how inflation and interest rate dynamics evolve.
Meanwhile, recent restructuring decisions by the Banking Regulation and Supervision Agency (BRSA), including the Central Bank’s move to cap interest rates on restructured credit card debt at 3.11%, have helped ease pressure on non-performing loans. As of October, the ratio of non-performing loans (NPLs) to total cash loans had risen to 2.39%, according to the BRSA’s latest figures.
Another restructuring package may be introduced in the coming months, although risks related to asset quality persist, the report suggested.
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