Bloomberg News

Turkish Banks Slump Most in a Month as Easing Signal Dropped

October 20, 2011

(Updates with closing prices from first paragraph.)

Oct. 20 (Bloomberg) -- Turkey’s banking index fell the most in a month after the central bank raised the overnight lending rate and dropped language that signaled it could loosen monetary policy.

The index retreated 5.6 percent to 113,256.5 at the close in Istanbul, the biggest decline since Sept. 22 and the lowest level since Sept. 5. Turkiye Halk Bankasi AS, a state-run bank, led the drop, slumping 7 percent to 11.35 liras. Akbank TAS, part-owned by Citigroup Inc., fell 5.5 percent to 6.48 liras. Turkiye Garanti Bankasi AS, the biggest listed lender by market value, slid 6 percent to 6.28 liras.

Turkish policy makers raised the overnight lending rate to 12.5 percent from 9 percent, while keeping the benchmark one- week repo rate unchanged at a record-low 5.75 percent. The central bank also dropped language that indicated it would continue to use policy tools to ease monetary policy.

The increased overnight rate is “bad for bonds, and thus bad for bank portfolios,” according to Ata Doganoglu, a trader at Ekspres Invest in Istanbul. The missing language on rates could indicate a rate hike in the future, which would also be negative for lenders, he said.

The lifting of the rate doesn’t directly affect the lenders’ borrowing costs, since they don’t typically use the more expensive overnight borrowing rate, he said.

“Inflation has become the priority of the central bank, so that is the key of this announcement,” Bali Ekin, head of equity trading at Credit Europe Bank NV in Amsterdam, said in response to e-mailed questions. “The emphasis has shifted from weaker growth to higher inflation” as the central bank seeks to support the currency rather than boost growth, he said.

The lira strengthened 0.8 percent to 1.8551 per dollar at 5:40 p.m. The currency has dropped 17 percent against the dollar this year.

--Editors: Linda Shen, Steve Bryant

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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