May 10, 2018 / 12:20 PM / 2 years ago

UPDATE 2-Turkey's banks cut mortgage rates, heeding Erdogan's call

* Erdogan calls for easing of housing loans

* Ziraat, Halkbank lower rates for some mortgages

* Construction a pillar of Turkish economy

* Economists fear Turkey overheating (Updates with Halkbank, adds comment, graphic)

By Ebru Tuncay and Ceyda Caglayan

ISTANBUL, May 10 (Reuters) - Two of Turkey’s largest state-owned banks lowered their mortgage rates on Thursday, a day after President Tayyip Erdogan met with heads of local banks and urged them to boost lending to 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 Wednesday with 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 to 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 to 0.98 percent on mortgages up to 500,000 lira ($117,000) with a maximum maturity of 10 years. The changes will go into effect on Friday, and compare to a current rate of 1.23 percent, according to its 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 to 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 said it plans to introduce steps to reduce a backlog of unsold homes, starting with Ziraat.

The plan is likely to include an interest rate cut to around 1 percent on housing loans, banking sources said. Mortgage rates are as high as 1.35 percent and have hit their highest in more than eight years, sector officials have said.

Turkey has around 1.5 million unsold houses, said Omer Faruk Celik, board member of the Konutder housing developers’ association. The rise in mortgage rates and banks’ reluctance to lend posed problems for builders, he added.

The fall in housing sales is unlikely to recover soon — even with the government push — due to elections in June, the looming Ramadan holiday and a typical slowdown in the summer months, Celik said.

Yapi Kredi, the sixth-largest bank by assets, has said it would offer reduced interest rates for house buyers if the sector as a whole lowers borrowing costs.

($1 = 4.2685 liras)

Writing by Ezgi Erkoyun and Daren Butler; Editing by David Dolan and Catherine Evans

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