Turkey Lowers Key Banking Ratio to Slow Credit as Lira Falls
Turkey Lowers Asset Ratio to Slow Loan Growth as Currency Slides
(Bloomberg) --
Turkey moved to slow lending to businesses in an attempt to stabilize the lira.
The banking regulator, known as BDDK, said Monday that its asset ratio formula, which compels banks to extend more loans, will be reduced by 5 percentage points to 95% for commercial lenders, and to 75% for Islamic lenders. The regulator also fine-tuned some rules for calculating the ratio and allowed banks to use average levels of the foreign exchange rate for the previous month.
Turkey is unwinding policies designed to shield the economy from the coronavirus pandemic that had unleashed a credit boom. The latest decision follows upheaval in financial markets last week that sent the lira to a record low against the dollar. The sell-off is showing little sign of letting up, with the Turkish currency suffering the second-biggest fall in emerging markets on Monday.
The asset ratio was introduced earlier this year to push financial institutions to step up lending, purchase government bonds and engage in swap transactions with the central bank. Commercial lenders asked the regulator to ease the rule at a meeting last week after days of lira weakness.
‘Relatively Small’
The size of the change is “relatively small” but it will help banks that were slightly below the asset ratio limit, according to Evren Kirikoglu, an independent market strategist in Istanbul. Even if the change isn’t large, the move is striking as it signals a “return to normalcy,” he said.
Banks have already started to raise rates on loans and deposits, reduced maturities on mortgage loans and canceled a grace period for second-hand homes. The central bank’s data show loan growth over the past 13 weeks slowed to around 35% after peaking at 50% in May, the fastest since at least 2008.
Turkey’s currency was trading 0.5% weaker at 7.3128 per dollar at 3:38 p.m. in Istanbul, after falling to a record 7.4084 earlier on Monday. The benchmark Borsa Istanbul 100 Index fell as much as 2% before erasing losses to trade 0.7% higher.
“No cocktail of these banking system tinkering or partial capital control measures is capable of turning the lira trend around,” Commerzbank AG economist Tatha Ghose said in a report. “The underlying weakness arises out of an inconsistent monetary policy framework, featuring no inflation targeting -- and this will continue to build up stress in the background until it ultimately forces fundamental change.”
Bank Fines
The regulator slapped fines totaling 200.6 million liras ($27.4 million) on two lenders -- HSBC Holding Plc’s Turkey unit and Islamic lender Albaraka Turk Katilim Bankasi AS -- for breaching the rule in July, when the minimum asset ratio was at 100% for regular lenders and 80% for Islamic banks.
A spokesperson for HSBC’s local unit declined to comment when asked if the eased requirements would have any impact on the fine.
An Albaraka Turk executive -- who asked not to be named, in line with policy -- said the lender had already adjusted its books to comply with the rule after the fine and will now hold talks with the regulator to see if the adjustment has any impact on the penalty. The new 75% ratio threshold is an achievable level for Islamic lenders, the executive said.
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