Following the Central Bank of the Republic of Turkey's (CBRT) decision to lower- the upper-band interest rate by 50 points last week, trade credit rates by banks for loans given out to firms decreased 1.71 percent from 15.08 percent to 13.37 percent. The recent cut of the overnight lending rate, also called the marginal funding rate or simply the upper band of the interest rate corridor, will boost short-term banking sector profitability, Moody's said in its latest credit outlook report Monday. "Given that the Turkish banks' deposits tend to be predominantly shorter term [up to three months] compared with longer-term bank assets, the banks' lower funding costs will benefit their net interest income," Moody's report says.
Moody's report added, "Furthermore, given that foreign currency funding in the banking system accounts for up to 50 percent of total liabilities, the Turkish lira exchange rate has a direct bearing on the banks' profitability,"
Thereby, Moody's expressed that Turkish banks will highly likely benefit from the reduction in the short term funding rate in TL terms.
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