The credit mechanism, a fundamental building block of financial systems, is a crucial element that directly impacts economic growth, investment, production, and employment (Karaaltı M. et al. 2020). Especially in developing economies, credit interest rates are considered one of the critical macroeconomic variables determining businesses’ investment decisions, cash flow management, borrowing capacity, and financial sustainability (Işıklar İ. 2011). In financial structures heavily reliant on banking systems, such as Turkey, changes in credit interest rates have a strong impact on the real sector (Eğilmez M. 2025).
In the Turkish economy, particularly in recent years, high inflation, monetary policy changes, exchange rate fluctuations, and uncertainties in financial markets have led to a significant increase in credit interest rates (Ünsal Y. 2025). This situation disproportionately affects small and medium-sized enterprises (SMEs), which are more vulnerable to access to finance compared to large businesses. This, in turn, impacts SMEs; Due to their limited equity structures, low liquidity levels, and dependence on bank loans, they exhibit a highly sensitive structure to changes in interest rates (Afşar M. et al. 2015). Graph 1 shows the real commercial interest rates in Turkey between 2015 and 2026.
Figure 1. Trend of Real Interest Rates on Commercial Loans in Turkey (2015–2026)
Graph 1 shows the trend of real interest rates on commercial loans in Turkey during the period 2015–2026. The real interest rate is calculated by subtracting companies’ inflation expectations from commercial loan interest rates. The graph reveals the real burden of credit costs on businesses over time. The real interest rate fluctuations seen in Graph 1 are important because they directly affect the cost of accessing credit for SMEs, but do not play a decisive role in investment, production, and cash flow processes.
In the world and in Turkey, SMEs constitute the vast majority of all businesses and represent a significant portion of employment and production capacity (Emir M. and Eyüboğlu K. 2010). However, high credit costs can cause SMEs to postpone investment decisions, reduce their production capacity, and increase their financial risks. As Deryol A. et al. (2026) stated, while monetary policies are effective in the short term regarding increasing credit costs, expectations and risks are the most significant determinants of interest rates in the long term. The effects of interest rate increases are more pronounced in sectors with high credit utilization intensity, such as trade, manufacturing, construction, and services.
The aim of this study is to examine the sectoral effects of credit interest rates in Turkey and to evaluate their financial implications, particularly on SMEs. The study will address the impacts of credit interest rates on investment, production, employment, cash flow, and financial sustainability. Furthermore, the financial consequences arising from the banking sector, credit risks, and non-performing loans will also be evaluated.
1. The Role of Credit Interest Rates in the Economic Structure of Turkey
Interest rates are one of the fundamental tools that balance savings and investment in the economy (Ünsal Y. 2025). Policy interest rates, determined in line with the monetary policies implemented by central banks, directly affect the loan interest rates of commercial banks (Kara H. 2012). The interest rate decisions of the Central Bank of the Republic of Turkey (TCMB) shape the lending behavior of the banking sector and have significant consequences on the volume of credit (Kara H. 2012).
Rising loan interest rates increase the financing costs of businesses while reducing investment appetite (Eğilmez M. 2019). Especially in long-term investment projects, interest costs can directly affect the profitability of the investment. This situation leads to a slowdown in economic growth and puts the real sector under financial pressure (Afşar M. et al. 2015).
Figure 2. Trend of Türkiye’s Economic Growth Rates (2000–2024)
Source: World Bank
When Graph 2 is examined, it can be seen that the growth rates in the Turkish economy have followed a fluctuating course periodically. Particularly during periods of economic crisis and financial uncertainty, there have been significant slowdowns in growth rates. High interest rates, increasing investment and production costs, have made it difficult for businesses to access financing, creating financial pressure on the real sector. This situation can lead to a slowdown in economic growth and a contraction of activities, especially in credit-dependent sectors.
In Turkey, the banking system is the primary source of financing for the real sector. Due to the insufficient depth of capital markets, businesses are largely dependent on bank loans. Therefore, changes in credit interest rates have a strong impact on the overall functioning of the economy (Afşar M. et al. 2015).
As Kesebir M. (2018) states, reforms implemented in Turkey, particularly after the 2001 crisis, to ensure financial stability strengthened the banking system. However, global crises, inflationary pressures, and exchange rate shocks have caused periodic fluctuations in credit interest rates. According to the CBRT’s Financial Stability Report, credit growth slows down, non-performing loan ratios rise, and banks’ risk perception increases during periods of crisis
2. Sectoral Effects of Credit Interest Rates
2.1. Effects on the Manufacturing Sector
Manufacturing is one of the sectors with the highest credit utilization in Turkey. Businesses operating in the manufacturing sector heavily utilize bank loans for raw material procurement, production processes, technology investments, and export financing. According to the Central Bank of the Republic of Turkey (2018) data, the manufacturing sector has the highest share of sector loans.
Rising interest rates increase production costs in the manufacturing sector. Especially during periods when energy, raw material, and labor costs are also rising, increased credit costs significantly reduce the profitability of businesses. This situation can lead to the postponement of investments, a decrease in capacity utilization rates, and job losses.
Figure 3. Comparison of Retail Sales and Industrial Production Indices in Turkiye
The graph shows limited growth in industrial production despite the increase in consumer demand; this supports the pressure of high financing costs on the manufacturing sector.
SMEs in the manufacturing sector are more affected by the high interest rate environment because they have more limited financial resources compared to large businesses. Rising financing costs reduce the competitiveness of businesses and can negatively affect export performance (Demirkol A. and Yılmaz G. 2025).
2.2 Construction and Real Estate Sector
The construction sector is one of the most sensitive sectors to interest rate fluctuations due to its high dependence on credit. Generally speaking, increases in housing loan interest rates create both supply and demand-side effects (Atasoy T. and Tanrıvermiş H. 2021).
Rising credit interest rates reduce housing demand (Şen U.C. and Koç Y.D. 2022). This also leads to increased financing costs for construction companies. Especially in large-scale projects, the interest burden constitutes a significant part of the cost structure. This can cause slowdowns and cash flow problems in the sector (Göksü et al. 2019).
SME-sized contracting firms experience even greater difficulties in accessing financing. The inability to meet working capital needs due to rising interest rates leads many firms to downsize their operations.
2.3 Trade and Service Sector
Businesses operating in the trade and service sectors mostly meet their short-term financing needs through bank loans. Loan usage is particularly common for inventory financing, working capital, and daily operational expenses.
Rising interest rates disrupt businesses’ cash flow and make their financial sustainability more difficult. High interest expenses, especially in small-scale businesses, reduce profitability and increase the risk of bankruptcy.
In sectors such as tourism, restaurants, logistics, and education, the pressure of interest rates is felt more strongly along with demand fluctuations. Increased financing costs are reflected in businesses’ prices and can negatively affect consumer demand.
3. Financial Implications for SMEs
3.1. Access to Finance Problems
One of the most important problems for SMEs is access to finance (Kutlu A.H. and Demirci S.N. 2007). SMEs, which have a lower collateral capacity compared to large-scale businesses, have difficulty finding credit in a high-interest environment.
Banks become more selective and tighten credit standards in order to reduce credit risk during high-interest periods. This situation makes it even more difficult for SMEs to access credit (Erdem E. and Duru M.N. 2010). Especially during periods of increased economic uncertainty, the decrease in banks’ risk appetite negatively affects the investment and production activities of SMEs.
3.2 Cash Flow and Liquidity Problems
High credit interest rates increase the debt repayment obligations of businesses, putting significant pressure on their financial structure. SMEs often try to solve their short-term cash flow problems through bank loans (Kutlu A.H. and Demirci S.N. 2007). However, the increase in interest rates raises financing costs, leading to a heavier debt servicing burden.
Businesses experiencing liquidity problems may have difficulty fulfilling their basic financial responsibilities such as employee wages, supplier payments, and tax obligations. This situation negatively affects the capacity of businesses to continue their operations sustainably.
Especially during periods of economic contraction, the high interest burden combined with collection problems increases the financial fragility of SMEs and strengthens the likelihood of businesses facing bankruptcy.
3.3 Effects on Investment and Growth
Since rising interest rates increase investment costs, businesses postpone new investment decisions. In particular, technology investments, capacity expansion, and digital transformation projects are pushed into the background in a high-interest rate environment because they require high financing needs.
This situation limits productivity growth in the long term and reduces the competitiveness of businesses. The fact that the majority of SMEs in Turkey operate at a low technology level, combined with insufficient financing, constitutes a significant problem for sustainable growth (Yüksel A. 2011).
4. The Relationship Between Credit Interest Rates and Non-Performing Loans
Increases in interest rates affect not only the cost of credit but also the repayment performance of loans. In a high-interest environment, businesses’ debt repayment capacity weakens, and non-performing loan rates increase. Studies show that there are significant relationships between interest rates and non-performing loans. Especially during periods of increased macroeconomic uncertainty, credit repayment performance deteriorates. Therefore, in such a conjuncture, it is important for the financial sector to also have a strong structure for a more robust economic structure (Yalçın H. 2024).
The increase in non-performing loans deteriorates the asset quality of the banking sector and reduces its lending capacity (Baş G. and Kara M. 2023). This situation can lead to a contraction in credit supply and a slowdown in economic growth. Banks’ application of higher interest rates in response to increased credit risk further increases financing costs, creating a negative cycle.
Table 1. Credit Development of SMEs After the 2008 Global Crisis.
Source: Kavcıoğlu Ş. (2014)
5. Interest Rate Policies and SME Support Mechanisms in Turkey
Various credit support mechanisms are implemented in Turkey to mitigate the effects of economic fluctuations. In particular, the Credit Guarantee Fund (KGF), low-interest loan programs, and support packages from public banks aim to facilitate SMEs’ access to finance.
Low interest rate policies implemented during crisis periods can support credit growth and contribute to the revitalization of economic activity (Karadeniz F. 2024). However, implementing sustainable interest rate policies in a high inflation environment requires an important balance.
Figure 4. Trends in Deposit/Loan Interest Rates in Türkiye (2000–2024)
Source: World Bank
To increase the financial resilience of SMEs, they need to be supported not only with low-interest loans, but also in areas such as financial literacy, digitalization, alternative financing sources, and access to capital markets.
Conclusion
In Turkey, credit interest rates are one of the critical economic tools that directly affect not only financial markets but also key macroeconomic indicators such as investment, production, consumption, employment, and economic growth. Especially in the Turkish economy, which has a banking-centric financial structure, the fact that businesses are largely dependent on bank loans makes the impact of changes in interest rates on the real sector even more pronounced. The findings of this study reveal that high credit interest rates create multi-dimensional financial pressures on sectors and especially SMEs.
When evaluated in terms of the manufacturing, construction, trade, and service sectors examined in the research, it is seen that the increase in credit interest rates increases the financing costs of businesses, delays investment decisions, and negatively affects production capacity. In the manufacturing sector in particular, the high interest burden combined with raw material, energy, and working capital costs reduces the profitability of businesses and weakens their competitiveness. In the construction sector, both the contraction in housing demand and the increase in project financing costs are causing a sectoral slowdown. From the perspective of businesses operating in the trade and service sectors, it is understood that interest rate increases are putting significant pressure on cash flow and daily operational sustainability due to their dependence on short-term credit.
One of the most important findings of the study is that the impact of increases in credit interest rates is felt more severely by SMEs compared to large businesses. SMEs, which constitute a significant portion of all businesses in the Turkish economy, exhibit a more vulnerable structure to a high interest rate environment due to their limited equity structures, low liquidity levels, and problems accessing alternative financing sources.
SMEs experiencing difficulties accessing financing are postponing investment decisions, reducing their production capacity, and in some cases resorting to high-cost short-term borrowing to continue their operations. This situation limits the sustainable growth of businesses in the long term and also has negative consequences on economic productivity.
Another important consequence of high interest rates is the deterioration in loan repayment performance. Especially during periods of economic uncertainty, the weakening of businesses’ income structure reduces their loan repayment capacity and leads to an increase in non-performing loan ratios. This situation negatively affects not only businesses but also the asset quality and lending capacity of the banking sector. Therefore, a high interest rate environment can eventually transform into a structure that creates mutual risk between the real sector and the financial sector.
In order to achieve sustainable economic growth in Turkey, it is important that interest rate policies are shaped not only from the perspective of combating inflation but also by taking into account the production capacity, investment environment, and financial sustainability of the real sector. Increasing access to affordable financing, especially for SMEs, stands out as a critical requirement for economic stability.
In this context, Credit Guarantee Fund support, low-interest investment loans, sector-based incentive mechanisms, and long-term financing models should be used more effectively.
However, it is clear that credit support alone will not be sufficient. To increase the financial resilience of SMEs, it is necessary to support digitalization processes, improve financial literacy levels, expand alternative financing sources, and strengthen access to capital markets. Long-term financing models, especially those supporting technology investments, are of strategic importance for increasing business productivity and international competitiveness.
In today’s economic conditions, it is crucial for businesses to have not only access to finance but also a strong corporate structure in terms of risk management, sustainability, financial control, and operational efficiency. Especially in the face of financial pressures created by high interest rate environments, it is essential for businesses to establish effective internal audit mechanisms, accurately analyze their risks, and manage their processes efficiently. Managing financial resilience has become a critical requirement for long-term financial stability.
In this context, internal audit, corporate risk management, ERP consulting, regulatory complianceoperational reporting, and process improvement efforts constitute strategic value for businesses. From this perspective, businesses should not only focus on short-term financial problems; they also need to improve in the areas of institutionalization, digital transformation, process management, and sustainable growth.
The internal audit, risk management, ERP consulting, regulatory compliance, and management consulting services offered by Teolupus aim to contribute to companies increasing their financial resilience, reducing their operational risks, and creating a more sustainable management structure. Professional consulting and corporate assurance services are of strategic importance, especially for SMEs to adapt to changing economic conditions.
In conclusion, there is a strong and multifaceted relationship between credit interest rates and real sector performance in Turkey. While rising interest rates can be used as a policy tool for inflation control in the short term, in the long term they put pressure on investment, production, employment, and financial sustainability. Therefore, in order to ensure economic stability, a balanced structure should be established between monetary policies and the needs of the real sector; holistic and sustainable economic policies should be developed, especially to reduce the financial vulnerability of SMEs.
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