2.4 Financial Stability Developments and Activities

2.4.1 Financial Stability Developments

The household debt-to-GDP ratio in Türkiye was 10% as of November 2025, significantly below that of peer countries and its historical average. The share of secured loans in the composition of household retail debt declined, while the share of credit cards and overdraft accounts increased. The macroprudential policy framework and tight financial conditions have offset the rise in indebtedness. In household asset preferences, the share of Turkish lira deposits and investment funds has increased, while the tendency toward portfolio diversification continues. The share of mutual funds in the household asset composition has risen to 28%. As of the last quarter of 2025, the ratio of household financial debt to financial assets stood at 25%, remaining well below its long-term average of 45%.

The ratio of the corporate sector’s total financial debt to GDP increased by 1.8 percentage points from end-2024 to October 2025, reaching 34.4%. This rise was mainly driven by firms’ foreign currency-denominated financial debts. In the same period, the ratio of Turkish lira-denominated financial debt to GDP rose by 0.2 percentage points to 13.3%, while the ratio of foreign currency-denominated financial debt to GDP increased by 1.6 percentage points to 21.1%. The low level of Turkish lira indebtedness was mainly driven by caps on Turkish lira commercial loan growth and tight financial conditions. From the end of 2024 to October 2025, the total foreign currency assets of corporate sector firms increased by 11.6% to USD 175 billion, while their total foreign currency liabilities rose by 17.4% to USD 358 billion. Firms’ total short position increased by 23.6% to USD 183 billion. As the FX credit growth limit was reduced to 0.5% and the scope of exemptions from the growth limit was narrowed, the widening in the FX short position slowed. While domestic FX borrowing has decelerated due to loan-growth caps, foreign currency borrowing from abroad has remained more robust. Although firms’ foreign currency liabilities have increased, firm-based analyses indicate that, despite the rise in foreign currency debt and the number of firms utilizing foreign currency loans, firms’ ability to cover their foreign currency debt with export revenues has improved.

To ensure that loan growth and composition remain in line with the disinflation path, the limits on foreign currency loans, initially introduced in 2024, were reduced in January and March 2025 to 1% and 0.5%, respectively. As a result, the currency composition of loans has evolved along a more balanced trajectory. The Turkish lira commercial loan growth limit, which was set at 2% in 2024, was differentiated as of January 2025 to 2.5% for SME loans and 1.5% for other commercial loans. In August 2025, the CBRT extended the calculation period for loan growth limits to eight weeks to provide banks with greater flexibility in liquidity management and to reduce volatility in loan pricing during periods of heightened credit demand, such as commercial and public debt repayment periods at quarter-ends. The growth limits are applied over eight-week periods at 5% for Turkish lira SME loans, 3% for other commercial loans, and 1% for foreign currency loans. Following these measures, Turkish lira commercial loan growth, which was 20.8% at end-2024, rose to 40.7% by the end of 2025. Over the same period, foreign currency commercial loan growth, adjusted for exchange rates, declined from 38.2% to 12.5%, while total commercial loan growth, exchange rate-adjusted, fell to 27.1%. Retail loans had an upward contribution to overall credit growth, expanding by 47% by end-2025. Annual growth in general purpose loans and personal credit cards reached 51% and 50%, respectively, making them the main drivers of retail credit growth. As a result, total FX-adjusted loan growth stood at 32% at end-2025.

In 2025, the banking sector experienced a limited deterioration in asset quality. During this period, the divergence between non-performing loan (NPL) ratios for retail and corporate loans continued. The total NPL ratio, which stood at 1.8% at end- 2024, reached 2.5% by the end of 2025. The increase in the NPL ratio was mainly driven by retail loans. Despite tightening financial conditions, the risk outlook for corporate loans remained relatively contained, supported by firms’ strong liquidity positions. Conversely, the rise in the NPL ratio for retail loans was driven in particular by general-purpose loans and credit cards. The loan restructuring facility introduced in July helped slow the increase in NPLs for retail loans. Another indicator for asset quality, the ratio of closely monitored (Stage 2) loans to gross loans, rose from 8.1% at end-2024 to 8.7% as of November 2025. Over the same period, the provision ratios for Stage 2 loans and NPLs were 12.8% and 75.5%, respectively. The banking sector has retained a prudent approach to potential credit losses, adhering to its policy of high provisioning.

Throughout 2025, the banking sector, backed by its substantial liquidity buffers, remained capable of meeting potential short- term cash outflows in both Turkish lira and foreign currency. The Liquidity Coverage Ratios (LCRs), a key indicator of liquidity risk, remained well above the regulatory limits. By the end of 2025, the total and foreign currency LCRs stood at 161% and 292%, respectively. Amid improving expectations and the accompanying decline in risk premiums and costs, banks secured net external funding of USD 33.6 billion during the first 11 months of 2025, while the external debt rollover ratio reached 119%.

The CBRT maintained the policy framework aimed at increasing the share of Turkish lira deposits and phasing out the FX-protected deposit (KKM) scheme, supporting monetary transmission. In April 2025, the Bank revised the method for calculating the upper limit for the remuneration rate applied to RRs maintained for Turkish lira deposits, using the weighted average funding cost (WAFC) as the reference instead of the policy rate. In May, the CBRT reintroduced the Turkish lira share growth target for legal entities. With the completion of Turkish lira conversion targets for KKM accounts in June, Turkish lira share targets for households were raised, and the minimum interest rate applied to KKM accounts was lowered. In August, the CBRT decided to end the opening and renewal of KKM accounts (excluding YUVAM accounts). In the last quarter of 2025, the Bank reduced the Turkish lira share growth targets for household. With the termination of KKM account openings and renewals, the KKM balance fell below TRY 7 billion by end-2025. During 2025, Turkish lira deposits increased by approximately TRY 5.8 trillion, while KKM accounts declined by around TRY 1.1 trillion. Over the same period, foreign currency deposits rose by USD 60.9 billion in nominal terms, and by USD 18.9 billion, adjusted for exchange rates, parity, and gold price effects, due to factors such as increased depositor demand for gold amid rising gold prices and partial conversion of closed KKM balances into foreign currency. Thus, the share of Turkish lira deposits in total deposits remained above 60%.

The banking sector’s return on equity, which stood at 26.5% at end-2024, increased to 27.5% as of November 2025. In 2025, the contribution of net interest income to profitability strengthened, while the rise in the cost of credit risk limited the improvement in return on assets. The strong performance in fee and commission income was sustained in 2025, as in 2024. The banking sector’s strong capital adequacy outlook was maintained, and the capital adequacy ratio stood at 19.2% as of November 2025, remaining above regulatory minimums. The contribution of the sector’s net income and retained earnings to its regulatory capital continues, with regulatory capital being backed by internal capital generation and subordinated debts. Banks continued to issue subordinated debt instruments that could be included in additional Tier 1 or Tier 2 capital in 2025. This was driven by improved access to external financing, increased demand from foreign investors, and banks’ diversification of external funding instruments.

2.4.2 Financial Stability Activities in the International Area

The CBRT continued to take part in the projects, meetings and surveys of international financial platforms that endeavor to strengthen financial systems. In 2025, meetings were held in physical, hybrid, and virtual formats.

The Financial Stability Board (FSB), of which the CBRT has been a member since 2009, develops policies aimed at strengthening financial systems and enhancing global financial stability through its members. The CBRT participated at a senior level in the Plenary, Steering Committee, and Standing Committee meetings held under the FSB. In addition, CBRT officials contributed to the work of FSB technical working groups.

Meetings of the FSB’s Regional Consultative Group for Middle East and North Africa (MENA), one of its six regional consultative groups established in 2011 to expand the FSB’s activities over non-member jurisdictions, took place on January 29-30 and November 13, 2025. In the second half of the year, the CBRT hosted the Regional Consultative Group for-Mena meeting in its capacity as co-chair. The meeting was attended by representatives from the central banks, ministries of treasury and finance, and supervisory authorities of Bahrain, the United Arab Emirates, Algeria, the United Kingdom, Qatar, Kuwait, Lebanon, Egypt, Saudi Arabia, Singapore, Tunisia, Oman, and Jordan, as well as representatives from the IMF and the World Bank (WB). The meeting staged discussions on global and regional vulnerabilities, the implications of debt sustainability for financial stability, the role of non-bank financial intermediaries in the region, and artificial intelligence along with its use in finance. Group members also exchanged views on the FSB’s ongoing work in 2025 and its priorities for 2026.

Another international financial platform, of which the CBRT has been a member since 2009, is the Basel Committee on Banking Supervision (BCBS). The BCBS is entrusted with the task of strengthening the regulation, supervision, and practices of banks worldwide to enhance financial stability, and also serves as a forum for continued cooperation in banking supervision. Represented at a senior level at the meetings of the BCBS, the CBRT also participated in and contributed to various working groups at the technical level.

The main agenda items of international financial institutions in 2025 included supporting global cooperation for financial stability, enhancing the resilience of non-bank financial intermediation, examining banks’ connections with non-bank financial activities, harnessing the benefits of digital innovation while controlling associated risks, monitoring the crypto asset market and the related prudential standard, assessing financial risks arising from climate change, improving cross-border payments, completing resolution reforms, monitoring and evaluating the implementation of FSB reforms, overseeing Basel III implementation in member jurisdictions, and developing practical supervisory tools for banks’ liquidity risk. To contribute as effectively as possible to these efforts, the CBRT collaborated closely with relevant Turkish authorities throughout 2025.

2.4.3 Activities in Participation Finance

The CBRT continued its activities related to evaluating and coordinating the regulatory needs of the participation finance sector, contributing to relevant legislative work, and analyzing the risks associated with this sector. Within the scope of CBRT’s mandate defined by legislation, a number of initiatives were carried out in close communication and collaboration with both domestic and international stakeholders.

In 2025, the CBRT carried on its activities in the field of participation finance in response to the needs of the sector and emerging regulatory requirements. In this context, the Bank revised the Implementation Instruction on Export and Foreign Exchange Earning Services Rediscount Financing to enable customers of participation banks to access rediscount financing for exports and foreign exchange earning services through Turk Eximbank. Additionally, the CBRT contributed to regulatory amendments aimed at allowing participation banks to intermediate financing transactions under the ALAIC Implementation Instruction, by enabling the scheme to operate with both variable and fixed profit rate financing options.

The CBRT participated in the governance activities and regulatory work of international institutions of which it is a shareholder or member in the field of participation finance, and by keeping a close track of global developments, contributed to reporting activities. Accordingly, the CBRT continued to contribute to the International Islamic Liquidity Management Corporation (IILM), in which the Bank has been a shareholder since it was founded on October 25, 2010. These contributions involved participation, throughout the year, at various levels, in the meetings of the IILM’s managerial and administrative organs, namely the Governing Board, the Board Executive Committee, the Board Risk Management Committee, and the Board Audit Committee. The CBRT also followed the work of the Islamic Financial Services Board (IFSB), of which it is a full member, and contributed to its policy documents. Moreover, as part of cooperation efforts to strengthen bilateral relations, presentations were delivered to representatives of the Central Bank of Oman and the Indonesian Banking Development Institute within the scope of collaboration activities with other central banks and international institutions in the field of participation finance.