Turkey to continue selective lending policy despite backlash – sources

Turkish President Tayyip Erdogan (seated) and Central Bank Governor Sahap Kavcioglu are pictured during a signing ceremony in Ankara, Turkey June 8, 2022. REUTERS/Umit Bektas/File Photo

ANKARA, July 29 (Reuters) – Turkey will stick to policies that only allow net exporters access to cheap lira loans and could tighten rules further despite corporate backlash as it strives to prop up its struggling currency, according to three people familiar with the plan.

Financial regulator BDDK, the central bank and other authorities have acted in recent months to slow loan growth. However, they excluded loans to net exporters who promise not to buy foreign currency before the loans mature.

Some companies have criticized the regulations and the Istanbul Chamber of Industry (ISO) said they created a “bottleneck” for companies trying to access finance.

But a source with knowledge of the matter said authorities could still take further steps to tighten lending rules.

“The direction of the economy has taken some tightening measures on lending and more will come,” the person said.

The BDDK and the central bank declined to comment on any other possible measures.

Regulations already in place aim to deter companies from using lira loans to buy foreign currency, putting pressure on the Turkish currency.

The lira lost 44% against the dollar last year and another 26% this year, mainly due to unorthodox interest rate cuts sought by President Tayyip Erdogan to boost exports and investment.

Since a historic monetary crisis in December, the state has assumed a dominant role in the foreign exchange and bond markets. The new lending limits have also strengthened its role in credit markets.

“Some of the loans that have been granted in the past have been used outside of their purposes, such as for currency purchases. Therefore, loans are granted more cautiously,” the first source added.

Turkey has a new plan for the Credit Guarantee Fund (KGF), which will see more selective loans given to support production and exports, the person added.

“EFFECTIVE USE OF LOANS”

Governor Sahap Kavcioglu said on Thursday that the central bank is closely monitoring loan growth and the allocation of funds for genuine economic activity. He will speak at ISO headquarters on the subject on Friday.

The central bank has maintained its key rate at 14% since December despite inflation having reached nearly 80%.

The bank wants cheap loans, with rates below 14%, to be used only for investment, exports and production and it said on Thursday that ‘efficient use of loans’ does not exert pressure on asset prices or on the exchange rate.

A senior official with knowledge of the matter said there would be certain limitations on long-term business loans.

“For example, new conditions will be imposed on loans here. New criteria are imposed on import substitution,” the person said.

A third source, a senior banker, said private lenders have “stifled” lending as Turkey’s state banks move to limit the growth of consumer loans, including mortgages.

Economists say slowing credit will pinch economic activity and overall economic growth in 2022. A Reuters poll showed they expect the economy to grow 3.3% this year with a slowdown significant in the second half.

Written by Ali Kucukgocmen; Editing by Jonathan Spicer

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