Türkiye positioned to weather global economic shocks: Central Bank

Central Bank of the Republic of Türkiye (TCMB) Governor Fatih Karahan said on Friday that the Turkish economy is positioned to withstand severe global shocks, citing reinforced financial buffers and an improved current account deficit trajectory during an address at the 3rd Global Islamic Economy Summit in Istanbul.

Low inflation key to investment climate

Karahan stated that maintaining low inflation remains essential for establishing a predictable investment environment, noting that price stability allows financial actors to offer long-term products at lower rates. He emphasized that the central bank prioritizes investments aimed at enhancing productivity, with the ultimate goal of creating a more prosperous economic landscape.

Participation finance doubles share of banking assets

The governor highlighted the Islamic finance sector's contribution to financial inclusion, describing it as a vital alternative within the banking ecosystem. "A clear example is the representation of participatory finance in small- and medium-sized enterprise loans," Karahan said, adding that many SMEs unable to access traditional credit instruments can obtain financing through participation banks. He noted that the sector's share of total banking assets has doubled from roughly 4.5% in the early 2010s to approximately 9% today, with participation banks demonstrating stronger credit growth than their conventional counterparts.

TCMB develops liquidity tools for Islamic institutions

Karahan revealed that the TCMB has spent two years calibrating financial instruments specifically designed to serve participation finance institutions, acknowledging that these entities operate with different business models and customer bases than commercial banks. "We structured these programs so that Islamic financial institutions can offer them to their customers, helping grow their market share," he said. The liquidity management tools aim to provide mechanisms compatible with the alternative banking system.

External buffers reinforced against supply shocks

Karahan observed that Türkiye's historical tendency to run current account deficits during periods of robust growth previously rendered the economy sensitive to external shocks. He explained that central banks face heightened difficulties when frequent and large supply shocks occur — such as those triggered by the COVID-19 pandemic, the Russia-Ukraine War, and ongoing Middle East conflicts. "Having various buffers, strong foreign exchange reserves, and not having weak points like the current account deficit are key in dealing with these shocks," he noted, adding that recent data indicates the economy is now better equipped to manage such crises effectively.