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local banks have already restructured a huge but unknown quantity of loans since the lira crisis, while, notably, they have also participated in Turk Telekom following the largest default in Turkish history. The lenders’ real estate holdings are also on the rise, but they are not yet at alarming levels. Observers have seen some recovery signs in Turkey’s industrial production since the beginning of the year, but a reversal of the trend of contraction is still awaited.
Government stimuli via public bank lending is playing a significant role in economic activity. However, given the collapse in domestic confidence, despite the boosts given to the extension of credit there is as yet no implication that Turkey is making its way on to a sustained recovery path. Three state-owned banks—Ziraat, Vakif and Halkbank—have reported that under a financing package known as ‘IVME’ they have provided TRY1.7bn (€275mn) in loans to a total of 11,500 companies operating in various industries. They outlined the situation in a joint statement put out on August 5.
“Another state bank credit expansion is under way in Turkey, this time 70% as strong as in Q1 ahead of municipal elections. Difference this time is that private banks are deleveraging, so partly this is a migration of private bank lending onto state bank balance sheets,” Robin Brooks of the International Institute of Finance (IIF) said on August 8 in a tweet.
The state bank lending boost is expected to continue. The official direction of the lira and the official course of inflation remain under the control of the government. But the synthetic inflation and exchange rates are the main factors hurting domestic confidence, hence the obstinacy of deposit holders who aren’t about to willingly give up their taste for dollarisation.
The global tremors, of course, are not helping. “Due to the strength of exports, industrial production was balanced to a certain extent in the first half of the year but we are seeing that foreign demand is not sufficient any more... There is already a significant slowdown in the industry sector abroad and views are increasing that this is slowly starting to affect us,” Hilmi Yavas of Yatirim Finansman told Reuters.
“Since the height of the Lira and Peso sell-off in August 2018, both currencies have weakened sharply in real effective terms, with the scale of depreciation in line with historical ‘sudden stops.’ While both [Turkey and Argentina] have seen their current account deficits narrow sharply, this is mostly due to cyclical weakness and not genuine rebalancing,” the IIF said on July 15 in
15 TURKEY Country Report September 2019 www.intellinews.com