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Two of Turkey’s largest state-owned banks lowered their mortgage rates on May 10, a day after President Tayyip Erdogan met with heads of local banks and urged them to boost lending for real estate, one of the pillars of Turkish economic growth. Erdogan, a self-described “enemy of interest rates”, has repeatedly called for lower borrowing costs to fuel credit growth and economic expansion. In 15 years of rule, he has transforme­d Turkey by building new roads, hospitals, bridges and ports. But investors now fear the economy is overheatin­g.

Erdogan addressed the sell-off in the lira at an unschedule­d meeting on May 9 between members of his economic team, the Central Bank governor and the heads of some of the major banks, including top state lender Ziraat and smaller rival Halkbank. “Banks are advised to make borrowing easier for the real estate sector,” the presidency said in a summary of the meeting. Ziraat, Turkey’s biggest bank by assets, said it was lowering the monthly interest rate from 1.23 percent to 0.98 percent on mortgages up to

TRY 500,000 ($117,000) with a maximum maturity of 10 years. The changes went into effect on May

11, according to the bank’s website. Halkbank, the fifth-largest lender by assets, also lowered the rate on similar housing loans to a monthly 0.98 percent, it said in a statement. Constructi­on of new homes has helped drive Turkey’s economic growth. The economy expanded 7.4 percent last year. Erdogan, who faces presidenti­al and parliament­ary elections in June, wants to keep that growth going.


“Turkey’s economy has shown clear signs of overheatin­g in recent months and is likely to undergo a painful adjustment,” Capital Economics said in a research note. “We remain concerned about the build-up of risks in the banking sector following the past decade’s credit boom.” Total housing sales fell 14 percent in March while mortgage sales declined 35 percent, official data showed. The government has followed through on plans to introduce steps to reduce a backlog of unsold homes, starting with Ziraat, including an interest rate cut to 0.98 percent on housing loans. Mortgage rates had been as high as 1.35 percent, their highest in more than eight years, sector officials said.

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