ISTANBUL, May 6 (Reuters) - Turkish shares fell on Friday, led by banks after downgrades and price target cuts on Turkish lenders from Citigroup, while bonds traded higher in narrow ranges and the lira was flat.
The Istanbul share index .XU100 dropped 0.83 percent to 68,777.22 points by 0655 GMT, in line with the emerging markets benchmark MSCI index .MSCIEF which fell 0.71 percent.
The banking index .XBANK, which makes up 40 percent of the Istanbul bourse, fell 1.13 percent after Citigroup downgraded Garanti (GARAN.IS), Halkbank (HALKB.IS), Isbank (ISCTR.IS) and Bank Asya (ASYAB.IS) to "hold", and cut price targets for Halkbank, Isbank, Vakifbank (VAKBN.IS) and Yapi Kredi (YKBNK.IS). (full story)
"Urged to contain lending by policymakers, Turkish banks are treating loan growth as a scarce economic resource in 2011," wrote Emre Izgi, an analyst at Citigroup. "We argue that by pursuing growth strategies to maximize individual payouts, they risk seeing collective rewards diminish."
Having enjoyed strong profits in recent years, Turkey's lenders are under pressure from the central bank to limit credit expansion after 34 percent growth last year.
Alarmed by the spiralling current account deficit that has accompanied surging economic growth, the central bank adopted an unorthodox policy mix late last year of lower interest rates and higher reserve requirements in search of an overall monetary tightening.
Analysts said the sharp decline in oil prices will put the Central Bank in a more comfortable position as it may ease the current account deficit.
Turkish banks including Garanti reported declines in first quarter profits after margins squeezed by the higher reserve requirement ratios imposed by the central bank.
Garanti shares lost 1 percent to 8 lira.
The yield on the benchmark Feb 20, 2013 bond <0#TRTSYSUM=IS> was down to 8.41 percent in rangebound trading, having closed at 8.47 percent on Thursday.
The lira IYIX= traded little changed at 1.5467 against the dollar.
"We may see some selling of benchmark bonds ahead of next week's treasury auctions, but we do not expect high volume trading or a sharp move in yields," a bonds trader said.
Akbank is expected to release its first quarter results on Friday. Analysts forecast a drop of around 22 percent in net profit on the year, according to a Reuters survey. Akbank shares fell 0.7 percent to 8 lira.
Investors also awaited the Central Bank release of results of the first expectation survey for May at 1130 GMT.
The survey will be the first since the central bank raised its year-end inflation forecast to 6.9 percent from 5.9 percent, and will show the extent to which market thinking and central bank thinking diverge.
(Reporting by Orpen Gokhun, writing by Ece Toksabay; Editing by John Stonestreet)
