Turkey’s Banks Fast-Track EU-Grade Green Asset Ratios

The European Union's initiative to translate its environmental taxonomy into a singular prudential KPI has yielded two years of publicly available Green Asset Ratio (GAR) data. Approximately 150 banks reported their ratios for the first time in 2024, and a subsequent wave of disclosures in 2025 highlighted the challenges of translating climate policy into tangible balance-sheet outcomes. The European Banking Authority reported an average GAR of below 3 percent, with significant regional variation; Dutch institutions led the rankings with an approximate GAR of 11 percent, while the majority of lenders reported ratios below 5 percent. Banks attribute these results to data deficiencies, a limited list of taxonomy-aligned sectors, and the exclusion of mortgages that do not fall within the highest energy-performance categories. ING's recent sector survey indicates a mean GAR of only marginally higher at 3.7 percent for the fiscal year 2024, with ING Bank itself achieving a GAR of 6.96 percent and Nykredit reaching 5.7 percent, in contrast to many Belgian and Polish banks, which reported ratios below 2 percent. Furthermore, the European Investment Bank anticipates a GAR of less than 1 percent—significantly lower than its self-imposed target of 50 percent for the reputational challenges posed by the stringent framework established.

The template adheres to the European Union Taxonomy's the Do-No-Significant-Harm principle, along with social safeguards. Consequently, assets that may intuitively be perceived as environmentally sustainable (such as energy-efficient home renovations, grid enhancements, and natural gas cogeneration) frequently do not qualify for inclusion in the numerator. In light of inconsistent company data, numerous European Union banks resort to utilizing proxy estimates or commercial Energy Performance Certificate (EPC) databases. Regulatory authorities have indicated that this practice will only be permissible until 2026, prompting institutions to urgently incorporate taxonomy classifications into their loan origination systems and client onboarding processes. Consultancies monitoring 50 major banks have reported that nearly all have established specialized teams focused on green data; however, only one-third have successfully integrated GAR logic into their credit decision-making workflows. Furthermore, many institutions express concerns that updating legacy information technology systems is more expensive than the potential capital benefits derived from achieving a higher ratio.

Turkey closely monitored this experiment and opted not to reinvent existing frameworks. On April 11, 2025, the Banking Regulation and Supervision Agency (BDDK) published its on the Calculation of Green Asset Ratio of Banks in the Official Gazette. This regulation incorporates the European Union's six environmental objectives and the local technical thresholds. Notably, these thresholds pertain to geothermal energy, green hydrogen produced from at least 75 percent renewable electricity, and climate-smart agriculture—sectors that the Turkish government considers strategic. To mitigate foreign exchange-driven volatility, sovereign exposures and trading-book assets are excluded from the denominator. Until the national taxonomy is finalized, banks may utilize either the EU criteria or the BDDK's interim list of renewable electricity generation with emissions below 100 g CO₂/kWh, LEED Gold-certified buildings, and zero-emission urban transport fleets. Public disclosure of quarterly data will commence with the figures from the fourth quarter of 2025, and external audits will become mandatory starting with the year-end report for 2026. Furthermore, the regulator retains the authority to impose minimum GAR floors or risk-weight discounts once a two-year dataset has been established.

Turkish financial institutions have been conducting dry runs to assess their compliance with sustainability standards. Garanti BBVA evaluated its portfolios in renewable energy, green buildings, and rail infrastructure, discovering that approximately 12 percent of its TL 171 billion sustainable finance portfolio would currently meet the full taxonomy criteria. Notably, loans to unlisted small and medium-sized enterprises, which constitute 30 percent of its credit portfolio, present significant challenges in data collection. İşbank's pilot study yielded an indicative GAR of 4–5 percent after excluding foreign exchange-linked government bonds. However, management indicated to analysts that this ratio could potentially double once the bank's SME energy efficiency program begins to gather audited EPC data. Additionally, foreign-owned banks such as BNP Paribas TEB and ING Bank Turkey leverage the taxonomy frameworks of their parent companies; nevertheless, they still face difficulties in obtaining detailed emissions data for local corporations.

The mutual influence between Turkey and the European Union operates in both directions. Ankara deliberately aligns its screening criteria with those of the EU wherever possible. Consequently, the exposures that Turkish banks classify as will correspond directly to the EU numerator once Brussels acknowledges the recognition that the European Commission is currently evaluating for the ASEAN region and Latin America. Conversely, the Turkish additions for geothermal and hydrogen energy present a practical testing ground that Brussels is observing as it prepares for the expansion of technical screening criteria in 2026. Should these thresholds prove effective in Turkey, they may be incorporated into the EU regulatory framework, thereby broadening the pool of GAR-eligible assets for European banks. As a result, cross-border banking groups will benefit from increased flexibility: a renewable energy loan originated by an EU parent institution and recorded in Istanbul could qualify under both GAR frameworks, facilitating consolidated disclosures and enabling access to more affordable green financing.

The convergence of financial metrics signifies that the audited GAR of Turkish banks will soon be as readily comparable to that of French or Dutch financial institutions. This development transforms the narrative surrounding emerging-market credit into a more liquid investment opportunity characterized by a For regulatory authorities, this convergence establishes a standardized framework for evaluation; BDDK can assess domestic banks in relation to their European counterparts and determine whether a low ratio indicates genuine portfolio risk or is simply a reflection of the country's gradual energy transition. Furthermore, for the banks themselves, the implications are unequivocal: the establishment of taxonomy-compliant data infrastructures, enhanced client engagement regarding disclosures, and necessary IT upgrades may currently be perceived as expenses. However, these investments are increasingly becoming essential for accessing international capital and for aligning with the policy incentives that regulators on both sides of the Bosporus are beginning to indicate.