Goldman Sachs said on Thursday that it was “cautious” about Turkish banks ahead of the May 14 election, citing lenders as more exposed to a potential post-election rate hike after years of unconventional monetary policy.
According to polls, President Tayyip Erdogan is at risk of losing the historic election, owing partly to a cost-of-living crisis that saw inflation jump to more than 85% last year amid ultra-loose monetary policy.
Turkish banks had historically benefited from higher rates, but that relationship ended in November when the government imposed new laws that effectively forced banks to lend at lower rates, according to Goldman Sachs in a client note.
Lenders were resilient following a change to shorter-term lending, according to the Wall Street bank, even though regulators lowering the cap on FX-insured deposits earlier this year to relieve pressure on the lira increased banks’ exposure to the impact of a prospective interest rate hike.
“In our view, banks are most likely to take a hit in an opposition win scenario,” said Goldman Sachs’ Jolene Zhong.