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Opinion
August 18, 2017 www.intellinews.com I Page 19
Rising expectations
The CGF also helped boost GDP growth to 5% in Q1 via expanded lending. Morgan Stanley esti- mates the CGF will add a percentage point to 2017 Turkish GDP growth.
“It is really hard to quantify it, but yes, from the banking perspective the majority of the [outper- formance] surprise is related to the CGF because most of the banks were guiding for slow lend-
ing growth at the beginning of the year and also expectations were much worse than what they are right now,” says Esendal.
Esendal is not among those analysts who fear that the availability of the CGF may have lowered the quality of the banks’ lending. He points out: “When I talk to banks they always tell me they have not changed the way they are extending loans to companies because the CGF will only cover the risk while the non-performing loans ratio is below 7%. Even if it gets to 7.1% all the risk goes to the banks so they cannot use this tool to extend loans to bad companies.”
The current NPL ratio for Turkish bank lending to SMEs was around 4.5 to 5%, he said, and with banks sticking to the same lending methodology despite the access to the fund there was no rea- son why it should rise, he added.
Of course, with the CGF depleted to around only TRY43bn for the guaranteeing of loans, the pace of lending in Turkey is bound to slow because the fund’s programme is meant to last all the way through to 2020. The government hopes that other boosters granted the economy, such as VAT cuts and special consumer tax reductions on some key consumer products, will help to keep the relatively strong economic growth on a roll despite the rapid digestion of the CGF funds, but, like Blackfriars, many fund managers are looking for an interest rate cut to maintain GDP growth and stock market activity.
If currently sticky and high inflation running at around 9.5% does fall as anticipated, loosening of
monetary policy is likely. However, there is some concern that Erdogan and impatient ministers have of late been even more aggressive than usual in their rhetoric demanding cheaper lending from the banks, and this could force the central bank to cut rates prematurely, leading to deeper macro- economic imbalances.
On July 27, Turkey's central bank left key interest rates unchanged for the second straight month, sticking to a hawkish standpoint in balancing near-double-digit inflation with Erdogan's in- sistent calls for cheaper credit. In a note sent
to clients after the regulator’s decision, William Jackson of Capital Economics said: "The state- ment accompanying today's decision... once
again struck a relatively hawkish note. Our sense, though, is that this hawkish stance will not last for too much longer."
Bankers have indicated that the period of soft lending is coming to an end. On August 8, TBB president Huseyin Aydin told a press conference that Turkish lenders gave “what they had” in offer- ing loans to businesses across the first half of the year and that it was now time for them to take a rest in order to slash operational costs.
Loan growth for this year was expected at 16- 18% and banks’ profitability growth at 15-20%,
he said, concluding: “We ran very fast in the first six months of the year. Now it is time for us to catch our breath, but we will never stop. Stability in global markets will make a positive impact on Turkey. There might be some ups and downs due to some global uncertainties. The key point here is to manage them well.”
But the very next day after Aydin spoke, Erdogan went back on the war path against the “profiteer- ing” banks, again calling for cheaper lending to stimulate more economic activity and declaring: “Something must be wrong if banks’ profits grew by 40% [in 2016] when the economy expanded at only 2.9% last year. I believe the central bank and lenders will take necessary steps to lower interest rates.”