Page 14 - TURKRptJun22

2.2 Pumping in loans, introducing non-capital controls
As of May 27, the central bank introduced a reserve requirement for commercial lira loans. The banking watchdog BDDK, meanwhile, increased the risk weight of commercial loans and removed the forbearance measure for the FX rate.
It seems that the Erdogan regime has fathomed that they do not have enough FX reserves to keep the lira under control amid such a fast growth in lira supply. However, they remain locked to their course as companies, beginning with SMEs, will bankrupt when they cut the loan flow.
So, they are once again pushing all the buttons at the same time, fuelling chaos. They are introducing a reserve requirement on loans (with exemptions taken into account; the central bank does not want companies to fuel their input stocks with cheap loans) while simultaneously announcing new loan packages.
There is currently a belief in the regime that if they extend cheap loans for investments everything in the Turkish economy will turn out great.
The regime tends to believe in different superstitions at different times. The commonality is that it pumps in lira loans and the lira crashes.
The problem is not where the loans are spent. The problem is the booming lira supply.
The Erdogan regime treats Turkey like a guinea pig. It is currently pumping in lira via commercial loans.
In 2017, it first boosted commercial loans via the credit guarantee fund (KGF).
Since 2018, following the lira crash of that year, it has been gradually introducing capital controls.
In 2020, it boosted consumer loans while applying soft capital controls. The lira crashed again.
Now, it looks set to discover that commercial loans plus soft (getting harder) capital controls also end in a currency crash.
Rather than dealing with banking regulations, the palace administration sends lists directly to banks to tell them who will receive how much in loans and at what maturity and cost.
The result will not change. If the amount of lira increases, the currency will crash again.
Non-capital controls:
- Price freezes: Finance minister appealed to local manufacturers and retailers to impose a temporary freeze on prices.
- Banking watchdog BDDK requested that banks carry out FX transactions with corporate clients between 10:00 to 16:00 Istanbul time.
- Central bank officials are calling banks again. Even for $1mn or $2mn, they are calling to check who the buyer is. They are really anxious about the corporate flow.
14 TURKEY Country Report June 2022 www.intellinews.com