UPDATE 1-Turkey's Erdogan takes aim at bank profits, calls for cheaper credit

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ANKARA, Aug 8 (Reuters) - Turkish President Tayyip Erdogan lashed out at the banking industry on Tuesday, saying it was a disaster that lenders were emphasising profits over what he said was their duty to boost the domestic economy.

Erdogan, who was speaking to the chamber of commerce and industry in the Black Sea province of Trabzon, said he believed that state-owned banks would take steps to bring down the cost of credit for borrowers.

“Banks have almost doubled their profitability. This is a disaster,” he said, in comments carried live on television. “I think it is our right to expect banks to lower interest rates and contribute to the country’s growth.”

Erdogan, who wants banks to loan more money at lower rates to boost the economy, has repeatedly described himself as an enemy of interest rates. He has also said that high interest rates cause inflation, an idea that is at odds with orthodox economics.

“If the banking sector can be more courageous in funding the markets, our economic growth will pick up pace,” Erdogan said.

In March the government increased the size of its Credit Guarantee Fund, which guarantees loans to small and medium-sized enterprises that could not otherwise get credit, by more than ten-fold to 250 billion lira ($71 billion).

That has proven something of a windfall for banks, with the industry’s net profit rising by a third in the first six months of the year.

Loans are expect to rise by 16 to 18 percent this year, an official from the Turkish Banks Association said earlier on Tuesday. ($1 = 3.5304 liras) (Reporting by Tuvan Gumrukcu; Writing by David Dolan; Editing by Dominic Evans)