Transcript: Turkey’s central bank chief steps down

This is an audio transcript of the FT News Briefing podcast episode: ‘Turkey’s central bank chief steps down’

Saffeya Ahmed
Good morning from the Financial Times. Today is Monday, February 5th, and this is your FT News Briefing.

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Talks have broken down in the UK over how AI models can use copyrighted materials. And European banks might be in for a disappointing 2024. Plus, Turkey’s central bank chief has quit just months into the job.

Adam Samson
It seems like it just reached a critical breaking point where she quit, and she basically said, I’m out; I’m just gonna resign.

Saffeya Ahmed
I’m Saffeya Ahmed, in for Marc Filippino, and here’s the news you need to start your day.

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A long-awaited code of conduct for how AI models can use copyrighted material has stalled in the UK. It’s a big blow to the creative industry. The UK government agency that oversees copyright laws couldn’t reach an agreement with artists and tech groups. Establishing rules on AI is top of mind for many artists, authors and musicians. They’re worried that AI models could copy and reproduce their work without paying them. This deadlock highlights the delicate balance the UK government is trying to strike between protecting the creative industry and allowing AI to develop.

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Turkey’s president Recep Tayyip Erdoğan appointed a new central bank governor over the weekend. The move came just hours after his previous appointee suddenly resigned. Hafize Gaye Erkan had been on the job for less than a year, and during that time she started a major overhaul of Turkey’s economic policy. I’m joined now by the FT’s Turkey correspondent Adam Samson. Hi, Adam.

Adam Samson
Hi, Saffeya. Thanks for having me.

Saffeya Ahmed
So tell me a little bit about Erkan’s pretty abrupt departure. Why did she resign?

Adam Samson
So Friday night was a pretty dramatic night here. The announcement came out quite late. I think it was after 10pm local time here in Ankara. There had been rumours spreading about her in the local press, I’d say for almost a month now. Basically, the sum of the press reports were that she had sort of given her father an unofficial role at the central bank, and that he had even gone so far as to fire one employee. Some of the other reports said that she hadn’t gone along super well with some of the other senior staff. It hasn’t been possible to verify any of that, but those reports have just been, you know, sort of going and going and going. And finally, you know, it seems like it just reached a critical breaking point where she quit, and she basically said, I’m out; I’m just gonna resign.

Saffeya Ahmed
OK. So how did Erkan get to be Turkey’s central bank governor in the first place, and what were some of her policies?

Adam Samson
Basically, Turkey had these unconventional, unorthodox economic policies for quite a long time. They were causing a lot of problems in its economy. It had a runaway inflation. People were very worried about the potential for balance of payments crisis. The lira is at a record low. All this really, really bad stuff. And so governor Erkan started in early June. She was an appointment that was made as part of this major economic overhaul that Turkey is doing. And her hallmark change was that she raised interest rates from 8.5 per cent to 45 per cent, which is an absolutely huge increase. And the political backdrop is also really interesting. President Erdoğan is a very longtime opponent of high interest rates. He once called high interest rates the mother and father of all evil. He’s fired previous central bank governors for raising them. So it was quite a big deal that she was able to raise them numerous times and to such a high level. So externally, people were, you know, quite happy with her monetary policy.

Saffeya Ahmed
So is the implication here that maybe Erkan was pushed out?

Adam Samson
I mean, I think in some way or another, she was definitely pushed out. I think it’s impossible right now to tell where the truth is. But her replacement is one of her deputies, a deputy central bank governor. He started in July. His name is Fatih Karahan. What he’s really focused on has been macroeconomics and labour markets. He worked at the New York Federal Reserve for about a decade. So his background is a very conventional sort of economic background for a central banker. He’s sort of a known entity in the economic community here. One of the former central bank chief economist came out and said pretty much right after his appointment, yeah, I know him. He’s an expert and he’s liked by people within the institution. So the reaction has been fairly positive among people, sort of in the economic and financial community here.

Saffeya Ahmed
OK. So it seems like there’s a little stability with this new appointment, but I’m wondering, what does this change mean for Turkey’s central bank and its monetary policy now?

Adam Samson
Yeah. So I think certainly, you know, when all this was happening on Friday night, one of the biggest questions on everybody’s mind, and even before Friday night, the biggest question since this overhaul started in June has been how long is President Erdoğan going to stick with it? I mean, for a long time now, Erdoğan has pitched this policy of holding interest rates really, really low despite high inflation, which is, you know, if you talk to 99 per cent of economists, it’s only made inflation much, much worse and cause all sorts of other problems. And I mean, the central bank doesn’t have any meaningful level of independence. So, you know, it could change on a whim, basically.

Saffeya Ahmed
Adam Samson is the FT’s Turkey correspondent. Thanks, Adam.

Adam Samson
Thanks for having me.

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Saffeya Ahmed
The United States launched a series of strikes over the weekend against militant groups aligned with Iran. This comes after a drone attack killed three American soldiers a week ago in Jordan. The Biden administration is under a lot of pressure to respond to the attack. It has since hit more than 80 targets in Yemen, Syria and Iraq. But there are also concerns that an escalation could draw American troops deeper into combat. Since the outbreak of the Israel-Hamas war, President Biden has repeatedly said he wants to avoid a full-blown regional conflict. But on Sunday, US national security adviser Jake Sullivan said that these latest strikes are, the beginning, not the end, of the US response.

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European banks are bracing for a tough year. A handful of major lenders released fourth-quarter earnings reports last week, and some of them are already starting to see a hit to their profits. Here to explain why is the FT’s European banking correspondent Owen Walker. Hi, Owen.

Owen Walker
Hey, how’s it going?

Saffeya Ahmed
I’m good. So to start things off, can you walk us through the broad themes of these earnings reports and 2024 forecasts?

Owen Walker
So, I mean, a general theme across the board is the impact of interest rates. And so what we’ve seen in Europe, especially over the last couple of years, is interest rates going from historic lows and, in some places even negative, to the highest rates since the financial crisis in a really quick time. And what that has meant for banks, certainly over the past year, it’s been a real boon really, because they make more money on the loans they have to customers. But what we’re starting to see with the fourth-quarter results is expectations that the year ahead, interest rates are actually going to start falling. And in response to some of the announcements from banks, BNP, the largest French bank and arguably one of the biggest banks in Europe, lost as much as 10 per cent of its market value on Wednesday when it reported its results. So shareholders have really been looking at these numbers and thinking there’s going to be significantly lower level of profitability among European banks in 2024 than it was in 2023, and therefore they are voting with their feet.

Saffeya Ahmed
Was there anything else concerning in the earnings reports?

Owen Walker
So a flip side of the increased interest rates we’ve seen over the past couple of years has been the impact on commercial real estate. So with rising interest rates, that means that mortgage costs increase, and that is really hitting the commercial real estate market. And so what we’re starting to see is a lot of banks starting to have to provision for potential losses from that sector, in particular the US commercial real estate market.

Saffeya Ahmed
Yeah. So how big of a factor are these problems you’re talking about in commercial real estate?

Owen Walker
Well, we saw a group of banks across the world last week in Asia, in North America and also Deutsche Bank in Europe, provisioning quite heavily for potential losses on US commercial real estate. Deutsche Bank, in particular, increased its provisions from €26mn a year ago to €123mn in the fourth quarter. So that really hit its profits. And we’re also starting to see in other areas as well. So arguably the biggest story in European banks so far has been at Julius Baer, which is now Switzerland’s second-biggest bank. And it was heavily exposed to an Austrian real estate developer called Signa Group. And Signa is facing all sorts of problems itself. Now, Julius Baer on Thursday came out and said that it was going to write down its entire SFr606mn exposure to Signa. And in response to that, the CEO resigned because this was seen as a loss that was taken because really the risks weren’t managed appropriately at the bank.

Saffeya Ahmed
Wow. So, Owen, what should we be looking out for with European banks in the coming weeks?

Owen Walker
So today we have UniCredit reporting their results. They are coming off the back of a very strong 2023. So all eyes are going to be on how they rounded out the final quarter and their prospects for the year ahead. Tuesday, UBS, coming off the back of their huge mega takeover of Credit Suisse, are going to be announcing their full-year result. And then the UK banks gonna round off the European banking season in a couple of weeks’ time. So plenty more to get through. And I think that, as I say, the theme of this year’s results is the prospect of lower interest rates in the year ahead and what that means for banks’ profitability.

Saffeya Ahmed
Owen Walker is the FT’s European banking correspondent. Thanks, Owen.

Owen Walker
Great. Thanks very much.

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Saffeya Ahmed
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.