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3.1 ​Macroeconomic overview
The Erdogan administration is keen to see loan growth stimulate the economy​.
Turkey’s central bank ‘set to sign off on adjusting tool to boost lending to specific recession-hit economic sectors’​. It will start by tweaking reserve requirements to squeeze more credit from lenders, two people familiar with the matter told Reuters late on November 27.
Sources informed the news agency that the plan is to strengthen the link between lending and reserve requirements and adjust settings regularly to steer credit toward sectors such as construction and energy, which remain mired in bad loans that became a far bigger burden after the summer 2018 balance of payments crisis in Turkey clobbered the value of the Turkish lira.
An adjustment to a rule adopted in August, when the central bank lowered reserve requirements and raised remuneration rates for lenders that had 10% to 20% loan growth, is reportedly expected. That move has helped push up credit growth, thus the plan is to essentially intensify it and increase the loan-growth range. A higher ceiling would help preserve the benefits for state banks on which the government has leaned to drive lending but which risk losses on their aggressive credit extension, Reuters reported, adding that it may also encourage more reticent private banks closer to the 10% floor to extend more credit.
“Loan extensions need to seriously increase. ​Most private banks have not been taking the necessary initiative to extend loans until now​,” one source was cited as saying. ​Two state banks risk running over the 20% ceiling and could “take a hit” if they do, so “precautions will be taken to prevent this,” the source said.
The central bank has slashed its benchmark interest rate by 1,000 bp since July to help the Erdogan administration hit its ambitious 5% Turkish economic growth target for 2020. Observers including the IMF have warned Ankara that opening the credit taps without due caution could lead to another wave of bad lending.
The new powers would reportedly permit the central bank to funnel credit to export sectors that have long been eclipsed by imports.
Weak external trade demand, geopolitical uncertainties and impaired private balance sheets are projected to keep Turkey’s GDP growth at
23​ TURKEY Country Report​ December 2019 ​ ​www.intellinews.com