Turkish banks rally as 37% repo funding restarts in Turkey

Turkish banks rose as much as 4.1% after one-week repo auctions resumed at 37%, easing funding pressure across lenders.

Repos reopen at 37%

The Borsa Istanbul Banks Index was up 3.3% at 10:59 a.m. in Istanbul after earlier touching a 4.1% gain. At that level, the gauge was on course for its highest close since July 16.

The move outpaced the wider equity market, with the BIST 100 Index up 0.2% at the same time. Turkish government bonds also advanced; two-year yields fell 58 basis points and 10-year yields declined 27 basis points, meaning bond prices rose as yields moved lower.

Turkey's central bank said late Sunday it would restart one-week repo auctions at its 37% policy rate. That reversed a funding pattern that had pushed banks toward the more expensive 40% overnight rate after the Iran war intensified economic uncertainty in early March.

Funding costs frame bank margins

For banks, the channel is direct: central bank funding affects the cost of liquidity, and that cost feeds into net interest margins. Expectations for a longer stretch of high interest rates had weighed on lenders, leaving the banks index behind non-financial peers by the widest margin in two years, according to the source material.

ING strategists including Chris Turner described the change as a signal from authorities rather than a full easing cycle. “A return to more traditional funding policy looks to be a sign of confidence from local policymakers,” they wrote in a Monday report.

Burak Isyar, head of research at ICBC Turkey Investment in Istanbul, tied the decision to third-quarter earnings mechanics. “The improvement in repo funding in the third quarter of the year could positively impact banks’ funding costs in their third-quarter balance sheets, leading to improved net interest margins,” Isyar said in a note.

Bank index still trails

The rally does not erase the sector's 2025 underperformance. Even after Monday's move, Turkish banks remained down 1.3% for the year, keeping lenders below where they started despite the latest repricing.

The central bank's March shift mattered because it arrived as an interest-rate cutting cycle paused and uncertainty rose around regional conflict. Higher short-term funding costs can compress the spread between what banks pay for money and what they earn on loans and securities, especially when balance sheets reprice unevenly.

The immediate market response pointed to a relief trade in financials rather than a broad equity rally. The banks index advanced more than the BIST 100 by about 3 percentage points at 10:59 a.m., while the bond move suggested investors also marked down yields following the funding announcement.

Third-quarter margins face two paths

If one-week repo funding remains available through the third quarter, the effect would run first through banks' funding costs, then through reported margins. For global investors, that would ease one pressure point in a high-rate emerging market; for Turkish lenders, it would support net interest income; for the wider sector, it could narrow the gap with non-financial shares.

If policymakers return instead to heavier use of the 40% overnight rate, the mechanism would work in reverse. Global risk appetite toward Turkish assets could become more sensitive to funding signals; banks would face higher liquidity costs; and the sector's recovery would depend more on loan repricing, deposit costs and the durability of the central bank's policy stance.