Loan interest rates, especially mortgage loans, are increasing. This increase in loan interest rates has exceeded the estimates of various economists. While the most important reason for this is shown as the over-borrowing and stagflation situation of the economy, it is a question of whether the new economic program, which will be implemented, will decrease the interest rates in the short term.
Economists have a very negative view of inflation and interest rates in their estimates. Need more rises in interest rates on housing loans in Turkey in this context, thinking it would be useful for the consumer credit interest rates are determined based on what consumers should do what and derivatives will be useful to address the issue.
How Banks Determine Credit Interest Rates
A person who wants to understand whether the loan interest rates will rise should have an idea about how banks determine their loan rates in order to make their own predictions. This is not a very complicated matter, the harder the bank can obtain the funds it needs to obtain loans, the higher the loan interest rates. This fund can be obtained both from the Central Bank, banks operating in foreign countries, and time deposit accounts, but it can be understood that these three fund sources have a certain cost when considered simply.
Banks earn as much as the difference between the interest rate given to time deposits and the interest rate that they give credit. Although various steps are taken currently cause banks to lower their loan interest rates as much as possible, banks do not raise interest rates on time deposit accounts, in other words, since the investment instruments are not used much in our country. In fact, some banks explain the highest profit of recent years in the negative situation that the economy is in.
Everything Starts From The Central Bank
Banks are free to determine how much interest to pay for deposits, current competition causes banks to hover around a rate. But banks that have to borrow to borrow loans must set interest rates above a rate, this is called fixed cost. This fixed cost is usually determined by the Central Bank because the banks allocate a large part of the funds to be provided from the Central Bank and thus the loan interest rate determined by the Central Bank for the loan allocation to the banks is also the fixed cost of the bank.
At the Monetary Policy Committee Meeting held last month, the Central Bank decided to increase the interest rates. This meant that banks would now borrow at higher costs, and another meeting will be held in the coming days. Therefore, after the Central Bank Monetary Policy Committee Meeting to be held on 13 December 2018, it will be clear whether the interest rates will increase further. The Central Bank announced that it did not make any changes in interest rates and that interest rates were kept constant after the PPC on October 25, 2018, so there was no serious difference in costs and no change was made in interest rates.
Banks want to lend long-term loans and open accounts because they can create new resources and provide more loans with their deferred payments. Considering that the term accounts opened in our country are 3 months on average, this period should be known to be really short. In other words, banks do nothing but save the day when they reserve the money of investors who have a time deposit account that lends money in 3-month periods as a fund to consumers with a maturity of 1-3 years.
Therefore, the interest rates will also have a high cost, because even if the account holders borrowed their money, they can withdraw their money at any time because it is in short-term expectations and this risk must be financed. Therefore, it will not be possible for banks to sign a serious decrease in interest rates unless long-term investments are started.
An academic study on how banks determine interest rates has revealed that banks are based on key indicators of the economy, including the increase in GDP and inflation. In this respect, interest rates will be as high as economic indicators in cases where demand is low, money is not spent and nobody wants to borrow, as experienced during the economic recession. This is not exactly the case, but if an estimate needs to be made in the shortest time, a general interest estimation can be made based on economic indicators. Probably the estimate will be correct. The macroeconomic indicators of our country are not getting any better, inflation has been realized as 24.50% in the past month, which is an indication that it will increase further.
When banks are allocating loans, they think that they will get back their debts just in time and in amount and act accordingly. If something goes wrong in this cycle, things get seriously disrupted, and therefore they are very careful about credit allocation. News about the sale of unpaid bank debts, which have been consecutive, to asset management companies, revealed that credit debts have not been paid at high rates.
In addition, economists who make predictions about the future estimate that consumers who cannot save and who are crushed under the cost of life may not be able to pay their debts in the future. It is not logical to expect credit interest rates to drop in a period of time in this and similar situations.
Why High Interest in Turkey
The most important reason for the high-interest rates of credit in our country can be listed as inflation, budget deficit, excessive borrowing of the treasury, an incredible increase in the amount of current account deficit and foreign debts.
The inflation rate has increased to 24.5% and almost no one finds the 5% inflation target as credible and achievable. These rates are not an acceptable inflation rate for international markets, but the inflation in our country reveals that consumers are unable to save, behave in spending money and borrowing, that is, the problem of stagflation.
After the election campaign spending before the constitutional referendum, the budget deficit grew in an incredible manner, and the budget, which gave a deficit of 4.87 billion TL in the same period of the previous year, had a deficit of 25.18 billion TL in the same period of the year. The rapid increase in the budget deficit caused the need for borrowing, and a vicious circle had to be created and interest rates had to increase even more.
Not Enough Outsourcing
Our country is a foreign-dependent country from various perspectives and foreign capital inflow is absolutely necessary to the country. The number of foreign resources available to Turkey a serious decrease in foreign liabilities also doing very short-term investments in small quantities. As we mentioned in the paragraph above, short-term investments are not so much desired for the economy, and even in a step taken for the extension of investment maturities, it was decided not to collect taxes from investment accounts opened with a maturity of at least 1 year.
Credit-Deposit Balance Is Impaired
Normally, the deposit volume of the banks should be higher than the loan volume, but things are not currently working this way. In the statement made at the end of September, it was revealed that the loan volume was 22.36% more than the deposit volume, that is, borrowing was higher than savings. Therefore, due to this imbalance, loan interest rates are getting higher.