LONDON (Reuters) – Goldman Sachs said on Thursday it was “cautious” on Turkish banks heading into the May 14 election, with lenders more vulnerable than the country’s other stocks to a potential post-vote rate hike following years of unorthodox monetary policy.

Polls show President Tayyip Erdogan risks losing the landmark election largely due to a cost-of-living crisis that has seen inflation soar to more than 85% last year amid ultra-lose monetary policy.

Turkish banks had historically been beneficiaries of higher rates, though that relationship broke down last November when the government created new rules effectively forcing banks to lend at lower rates, Goldman Sachs said in a note to clients.

Following a shift into shorter-term lending, lenders remained resilient, the Wall Street bank said, though regulators lifting the cap on FX-insured deposits to ease the pressure on the lira earlier this year raised banks’ exposure to the impact from a possible interest rate hike.

“In our view, banks are most likely to take a hit in an opposition win scenario,” Goldman Sachs’ Jolene Zhong wrote.

(Reporting by Karin Strohecker, editing by Dhara Ranasinghe)

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