Life after 19 March
Following the arrest of Istanbul Mayor Ekrem İmamoğlu on 19 March 2025, Turkish markets witnessed a period of political turbulence and market volatility. Adding to the uncertainty, policy decisions by US President Trump triggered a new wave of risk aversion across global markets, contributing to a broad sell-off in Turkish credit.
In response to these developments, the Central Bank of the Republic of Türkiye (CBRT) surprised markets by first adjusting the interest-rate corridor and then implementing a conventional policy rate hike—reversing its earlier easing stance. This marked a clear pivot in the monetary and investment environment, with Turkish banks now facing a more complex landscape than envisioned in early March.
Accordingly, we have revised the outlook we presented in our 13 March initiation of coverage. Our updated view on the Turkish banking sector now reflects a delayed recovery in net interest margins (NIM), elevated cost of risk (CoR), greater pressure on asset quality and TRY-denominated loan growth, potential delays in regulatory simplification.
From a fundamental perspective, we continue to favour banks with higher TRY deposit bases, smaller CPI-linker portfolios, and longer duration gaps. At the same time, the sell-off in Turkish credit has created selective opportunities. Among private banks, we see Garanti BBVA, İş Bankası, and Halkbank as relatively better positioned in this environment.
Based on current yields, we recommend İş Bankası’s 2029 bond, which remains our top pick among Turkish bank credit. The Eximbank 2026 and 2028, along with the Ziraat 2029, also continue to offer attractive risk/reward profiles. In addition, the repricing has made the Vakıf 2030 stand out as an appealing option.
While we believe the sector is entering a recovery phase post-19 March, and fundamentals are stronger than in previous stress episodes—supported by robust capital buffers, de-dollarisation efforts, and external funding flexibility—the political overhang continues to cloud the medium-term outlook. In our view, the investment case for Turkish bank credit is no longer centred on macro normalisation. It is now a test of institutional resilience, profitability discipline, and policy credibility.