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Exclusive – A slew of new rules make it difficult for Turkish banks to lend – sources

By Ebru Tuncay, Nevzat Devranoglu and Ceyda Caglayan

ISTANBUL (Reuters) – Some Turkeys have raised costs after the latest slew of government regulations raised costs and forced many banks to cut lending Banks are cutting corporate lending. Five banking and private sector sources told Reuters that balance sheet risk.

As part of President Tayyip Erdogan’s unorthodox management of the economy, the new rules have curbed long-term lending in particular. The owner of a mid-sized manufacturer said it was “increasingly difficult” to get the credit they needed.

Credit and collateral regulations introduced in recent months have caused confusion and many questions from banks, sources said on condition of anonymity.

“These are very difficult projects for banks to manage,” a banking source said. “Each bank is struggling to manage its balance sheet to deal with additional liabilities that may arise after government regulation, which scares banks.”

Rules mean the push for cheaper sometimes continues The government favors riskier, smaller borrowers, while overall credit in major emerging economies is likely to cool, credit sources said.

Overall credit growth based on 13 weekly FX-adjusted indicators up 13 % vs last year Compared with the percentage at the end of August, the data shows, compared to the

% in April when the series of regulations began.

The stakes are high for Erdogan and his conservative AK Party ahead of next year’s tense elections, where polls suggest he may lose the election due to soaring living costs and other economic pressures.

His economic plan, which prioritizes growth, jobs, investment and exports, was driven by a series of rate cuts that sparked a currency crisis and an inflationary spiral late last year.

The central bank continues to cut interest rates despite inflation reaching 80%. In recent months, it has passed several new rules that direct cheap loans to net-exporting companies and industries, aimed at easing Turkey’s huge current account deficit.

Last month, the bank required lenders to hold long-term fixed-coupon bonds as collateral for some loans deemed not to promote investment or exports.

But some lenders say holding long-term illiquid bonds to back short-term loans is too risky. Others are asking customers to close some loans rather than renew them, letting the companies use their equity, another banking source told Reuters.


The central bank’s oversight last month forced lenders to lower business lending rates and required banks not to hold larger lira deposits, sparking a flurry of Treasury purchases.

Bankers said the central bank’s message to the financial sector was to provide cheap loans to net exporters and small and medium-sized enterprises (SMEs), or effectively return funds to the government by holding bonds.

In response, lenders sent the central bank dozens of questions and concerns about how to conduct business under the new rules, according to a letter seen by Reuters. These include how the rules cover factoring and leasing companies, long-term project loans, and mergers and acquisitions.

The central bank told Reuters it addressed all of these issues in an official circular last week.

“Measures are being taken to change the loan structure in the country. More loans will be made to targeted sectors if necessary,” said an official close to the matter.

The official added that the proportion of central bank lending to SMEs has risen from 5% at the beginning of the year to 13%, which should continue to increase.

On Friday, the central bank rejected a request by banks to hold foreign currency instead of long-term lira bonds.

The same goes for loans to SMEs, traders and exporters, while investment and agriculture are largely excluded from the draconian new rules.

Banks see SMEs as more risky but more likely to expand investment and hiring, while exporters help ease the country’s trade imbalance and replenish the central bank’s depleted foreign reserves.

Businesses complained that the rules favored some sectors over others and slowed lending at a time when high inflation eroded their equity and made credit more important.

The lira more than halved its value against the dollar in two years as inflation surged to 24 year highs, mostly by most economists said that due to interest rate cuts and economic mismanagement.

The manufacturing executive, who asked not to be named, said his company’s equity demand in lira has quadrupled over the past two years, while Commodity prices doubled in foreign exchange terms.

“How can a company use its equity in this situation to pay off its debt to the bank,” he said.



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