Turkey to Reward Banks That Lend More With Looser Reserve Rules
Turkey Links Bank Required Reserve Rates to Loan Growth
(Bloomberg) --
Turkey’s central bank is following its record monetary easing with a push to get credit flowing again.
Under regulatory changes unveiled on Monday, policy makers will determine the amount of cash banks must put aside as reserves depending on how much credit they extend in an effort to boost the economy through faster lending growth.
Within the current tiered framework, the reserves are effectively an insurance against bank liabilities -- such as deposits and participation funds.
The central bank said the revision will initially unlock about 5.4 billion liras ($960 million), and also provide $2.9 billion of gold and foreign-currency liquidity to the market.
The central bank’s “decision is an act of expansionary monetary policy and insofar is in itself lira-negative,” said Ulrich Leuchtmann, head of currency and commodity research at Commerzbank AG in Frankfurt. “Maybe it is so much focused on pushing the real economy that it became blind to inflation risks.”
The lira fell on concern authorities are moving to loosen policy more aggressively than previously assumed. It suffered one of the world’s biggest losses after the announcement before partly recouping declines on Tuesday. The reaction in bank stocks was mixed.
State banks stand to benefit the most from the changes because they’ve been at the forefront of government efforts to extend cheap loans.
Required reserve ratios for banks with loan growth of 10% to 20% will be set at 2% -- with some exceptions -- while remaining unchanged for other banks, according to a statement on Monday. The ratios are currently at 7% for deposits of up to three months, 4% for six months, and 2% for up to one year.
Additionally, the current remuneration rate of 13%, applied to mandatory lira-denominated reserves, is set at 15% for banks with 10%-20% loan growth and at 5% for others.
“The move is intended to incentivize lending,” Goldman Sachs Group Inc. economists Murat Unur in London and Clemens Grafe in Moscow said in a report. “Given banks’ hesitancy to increase lending, as implied by the flat loan stock,” similar moves “are also likely to continue.”
To contact the reporters on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net;Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net
To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Lin Noueihed at lnoueihed@bloomberg.net, Paul Abelsky, Alaa Shahine
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