Turkish shares fell on Friday, led by banks after Citigroup downgraded four Turkish banks and cut its price estimates, and Akbank's first quarter results disappointed.
The Istanbul share index .XU100 dropped to close 1.63 percent lower at 68,240.93 points, underperforming the emerging markets benchmark MSCI index .MSCIEF which fell 0.21 percent.
Citigroup downgraded Garanti, Halkbank, Isbank and Bank Asya to "hold", whilst cutting price estimates for Halkbank, Isbank, Vakifbank and Yapi Kredi, causing the banking index .XBANK, which makes up for 40 percent of the Istanbul Bourse, to fall 1.91 percent.
Emre Izgi, an analyst at Citigroup, said banks were all still trying to pursue strong individual loan growth at the risk of triggering further action by the central bank or the banking regulator to cool the credit boom.
"We argue that by pursuing growth strategies to maximize individual payouts, they risk seeing collective rewards diminish," he wrote.
Akbank's loans grew 10 percent in the first quarter alone. The central bank wants to keep loan growth this year to 20-25 percent in order to rein in Turkey's external deficits.
The central bank adopted an unorthodox policy late last year of lower interest rates and higher required reserve ratios (RRRs) to achieve overall tightening by reducing liquidity.
Turkish banks including Garanti reported declines in first quarter profits after margins fell due to higher RRRs.
Garanti shares lost 1.98 percent, closing at 7.92 lira.
The yield on the benchmark Feb 20, 2013 bond <0#trtsysum=ıs> fell to 8.40 percent, having closed at 8.47 percent on Thursday.
The lira IYIX= closed flat at 1.5425 against the dollar from a previous close of 1.5440.
"We may see some selling of benchmark bonds ahead of next week's treasury auctions, but we do not expect high volume trading or a sharp move in yields," a bonds trader said.
Akbank posted worse-than-expected first quarter results. First-quarter unconsolidated net profit was 744.06 million, down 26 percent, below an average forecast in a Reuters poll of 755.9 million lira. Akbank shares fell 2.48 percent to 7.86 lira.
Investors also eyed the Central Bank's first inflation expectation survey for May. The year-end CPI forecast rose to 6.93 percent from a previous figure of 6.90 percent.