Turkey to Seek Funding to Bolster State-Owned Banks, Sources Say

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Turkey is working on a plan to bolster the capital levels of state-owned banks to keep fueling cheap credit and stoke an economy heading for recession.

The finance ministry is trying find a source of funding to inject into the lenders, according to people familiar with the deliberations, who asked not to be named because the talks are internal. Most of the financing would be aimed at the two largest state banks TC Ziraat Bankasi AS and Turkiye Halk Bankasi AS, the people said.

A clearer plan will emerge after local elections at the end of this month, said the people. Finance Minister Berat Albayrak’s office didn’t immediately respond to a request for comment.

The steps come as President Recep Tayyip Erdogan’s administration pushes lenders to salvage industries from agriculture to soccer clubs and help consumers pay off credit cards or get below-market interest rates on mortgages. Banks need strong capital buffers if they are to keep lending, but are having to contend with loan-restructuring demands from some of the nation’s largest companies and higher financing costs after the lira plunged.

Adding Risk

The government’s efforts to sustain lending prompted a warning for Moody’s Investors Services. The steps may hurt the credit ratings of lenders because they add “risk and negatively affect margins,” the ratings company said this week, citing Ziraat Bank, Halkbank and Turkiye Vakiflar Bankasi TAO.

State-owned institutions are aggressively stepping in as commercial and international banks pull back amid a growing pile of souring loans. That is helping to reverse a decline in loan growth in 2018. The total credit extended by government lenders jumped to 24.7 billion liras ($4.6 billion) this year through Feb. 22, while the books of those in the private sector fell to 12.4 billion liras, according to the latest data from the banking regulator.

There is no let up, with Ziraat on Friday announcing a reduction in its monthly mortgage rates and interest charges on consumer debt, coming only days after the government extended term limits on loans for everything from computers to cars.

Turkey’s state banks were among the major lenders to multi billion-dollar infrastructure projects sponsored by the government in the past decade including a $12 billion airport in Istanbul, a network of roads and suspension bridges across and around Istanbul, Turkey’s largest city, costing at least $10 billion.

Some private lenders are scrapping dividends on their 2018 earnings as the regulator presses banks to build up their capital. Isbank on Friday became the latest Turkish lender to propose no dividend after Akbank TAS, Yapi ve Kredi Bankasi AS and Denizbank AS, the Turkish unit of Sberbank PJSC, said they will be holding back on payouts.

--With assistance from Asli Kandemir and Firat Kozok.

To contact the reporters on this story: Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net;Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, ;Onur Ant at oant@bloomberg.net, Vernon Wessels, Ross Larsen

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