European and Turkish Banking Sector Outlook

European banks are operating under sustained margin pressure and weak credit demand, despite rate cuts since mid‑2024. Falling asset yields and sticky deposit costs are squeezing profitability, pushing banks toward cost transformation, consolidation, and fee‑based revenues. At the same time, regulatory reforms in payments and consumer credit are reshaping market access, while the sharp decline in fintech funding is accelerating bank–fintech partnerships as a lower‑risk path to innovation and scale. 

In contrast, Turkish banks have recently rebuilt margins, supported by CBRT rate cuts that reduced deposit costs faster than loan yields. However, this recovery is accompanied by rising credit risk, particularly in Retail and SME segments, leading banks to tighten underwriting and increase provisions. Lending growth remains tightly managed through macroprudential measures, while competition is intensifying as digital banks, fintechs, global players, and retailer‑backed ecosystems expand across payments, wealth, and embedded finance. 

Looking ahead, technology is the key differentiator for Turkish banks to sustain performance. Digital and AI‑driven sales and service models, automation, and advanced analytics are critical to improving efficiency and risk management, while open banking and instant payments create new growth opportunities. With early signs of asset‑quality deterioration, data‑led credit monitoring and collection management will be essential. In this context, banks that can effectively combine digital scale, ecosystem partnerships, and disciplined risk management in a balanced way are expected to achieve a more advantageous position.