Tax cuts can lower Turkish interest rates : Minister

Tax reductions, along with the removal of certain fees for bank deposits, can be used to lower interest rates in Turkey, the country's economy minister said Monday.

Speaking to journalists in Ankara, Nihat Zeybekci said there was a need for an exclusive study to re-evaluate the cost of lending in Turkey.

"There is a difference between the interest payments paid to deposit holders and the banks' interest revenue that comes from the borrowers," Zeybekci said.

"Some of the components that affect the costs of lending arise from the legislative obligations," he said. "So, public burdens like taxes and fees can be reduced or even be removed."

On Oct. 26, Turkey's Central Bank kept all short-term interest rates steady, as the one-week repo rate -- also known as the bank's policy rate -- was held at 8 percent.

The marginal funding and overnight borrowing rates were also unchanged at 9.25 and 7.25 percent, respectively, while the late liquidity window interest rates were also kept steady -- the borrowing rate at 0 percent, and the lending rate at 12.25 percent.

Government officials, including President Recep Tayyip Erdogan, have repeatedly criticized the Turkish Central Bank's relatively tight monetary policy, claiming it was limiting growth.

The economy minister also said that state-run lenders could play a leading role in the banking sector by sacrificing some of the sector's profit to reduce the cost of finance.

According to Banking Regulation and Supervision Agency (BDDK), Turkey's banking sector's net profit was $10.5 billion between January and September, of which $3.9 billion belonged to state-run lenders.

In Turkey, nearly 50 state/private/foreign lenders, including deposit banks, participation banks, development and investment banks had over 11,500 domestic and overseas branches with almost 210,000 employees at the end of third quarter this year.

Zeybekci also added that the requirement reserve ratios for the deposits could be lowered because the Turkish banking sector's regulatory capital to risk weighted assets ratio was better than that in 25 EU countries.

The banking sector's regulatory capital to risk weighted assets ratio -- a significant indicator to figure out minimum capital requirements of lenders -- was at 17.2 percent in September.

"Since our banking system is in a really good position without any problem, we can evaluate every measure of action [to reduce cost of lending]," Zeybekci said, noting the need for a comprehensive calculation.

"I am just voicing my opinion. Other public institutions like the Finance Ministry, the Treasury, the Central Bank, and the banks association would be parties of a such re-evaluation study," he added.