S&P: Türkiye’s inflation progress supports banking sector stability

S&P Global Financial Institutions Director Regina Arginio said the risks facing Türkiye’s banking sector are significant but manageable, thanks to progress in reducing inflation and better-than-expected economic performance.

S&P Global Financial Institutions Director Regina Arginio said progress in reducing inflation and better-than-expected performance by Türkiye’s economy are helping keep banking sector risks manageable despite global and regional economic shocks. She made the remarks during the 2026 Turkish Capital Markets Conference in Istanbul.

Arginio said the agency is closely monitoring Turkish banks’ ability to continue refinancing their substantial external debt, warning that any failure in this area could pose a problem for the banking system. She described the cancellation of all regulatory deferral measures applied over the past year as a positive step supporting financial stability.

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She noted that high real interest rates make it more difficult to expand lending, while rising funding costs put pressure on small and medium-sized enterprises and retail customers. She said these were among the main risks to asset quality in the coming period. She forecast an improvement in net interest margins next year as interest rates decline.

She said the sector’s future would depend on the timing and pace of interest rate cuts and the results of the inflation-reduction program, adding that permanently lowering inflation and strengthening confidence in the economy would create a stronger and more resilient environment.