Turkey’s Central Bank is making efforts to improve lending availability following a rate drop.
(Reuters)-ANKARA On Saturday, Turkey’s central bank announced fresh steps to improve loan availability, including increased reserve requirements for lenders, only days after shocking markets with a 100 basis-point interest rate fall to 13%.
After emphasizing the need to reduce the increasing gap between its policy rate and lending rates when it slashed rates on Thursday, it said the moves were intended to maintain financial stability and enhance the monetary transmission mechanism.
The central bank increased the existing 20% reserve requirement ratio for credits to 30% treasury bond collateral.
Turkish authorities, notably the central bank and the BDDK banking regulator, have already made moves to restrict loans to firms other than net exporters as part of an economic strategy to turn the country’s large current account deficit into a surplus.
Last month, industry organizations complained about rules, claiming that industrial businesses are unable to obtain low-interest financing.
As part of the central bank’s new regulations, banks must hold 20% of commercial loans with interest rates greater than 1.4 times the existing reference rate of 16.32% in securities. If the interest rate on a commercial loan is more than 1.8 times the reference rate, lenders must keep 90% of the bond collateral.
According to Timothy Ash of Blue Bay Asset Management, the new central bank guidelines lowering bank lending rates make banking more difficult.
“It will raise fears about overheating, raise inflation, and put additional downward pressure on the lira,” Ash remarked on Twitter (NYSE: TWTR).
The central bank also stated that banks must keep in securities an amount equal to loans that surpass a 10% loan growth rate when compared to the end of 2022 for a year.
