Erdogan Okays Third Capital Boost for State Banks Since 2019
Erdogan Okays Third Capital Boost for State Banks Since 2019
(Bloomberg) -- Turkish authorities plan to inject capital into state-owned banks to ensure they keep lending to businesses as the lira’s record drop erodes the lenders’ buffers.
The exact size of the capital boost and its funding method are being ironed out by the Treasury and Finance Ministry following the final go-ahead by President Recep Tayyip Erdogan on Monday, people familiar with the matter said, asking not to be identified as the decision has yet to be announced.
The lira’s recent decline and an effort by state banks to keep the cost of credit low since the Covid-19 pandemic eroded cash buffers at TC Ziraat Bankasi AS, Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi TAO, the top three banks at the heart of the recapitalization plan.
Following the news, Halkbank shares jumped as much as 6% while Vakifbank’s stock rose as much as 4.5% in Borsa Istanbul trading. The banking index was up 2.9% as of 12:42 p.m.
Despite the injections, the average capital adequacy ratio of state-owned banks fell to 16% at the end of October from 18% at the end of 2019, according to data from the banking watchdog.
Representatives Halkbank and Vakifbank didn’t return calls and emails asking for comment. Ziraat Bank referred to earlier comments by its chief executive officer, who said authorities were working on a plan to strengthen banks’ capital base. The presidency and the wealth fund didn’t immediately comment.
The government plan is aimed at giving banks more firepower to support businesses as Erdogan experiments with a new economic model that he says should turn Turkey into an industrial powerhouse. In the Turkish president’s view, the transformation requires freeing the country from it dependence on short-term foreign inflows by reducing interest rates.
That strategy has derailed the lira. Turkey’s currency has lost more than half its value against the dollar this year as consumers and investors sought to protect their savings by parking their cash in dollar deposits or buying new homes and cars.
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