Turkish lira/Bloomberg

Economy

Turkey weighs new reserve rules for banks to boost credit growth

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State banks stand to benefit the most from the changes because they’ve been at the forefront of government efforts to extend cheap loans.

Saturday 13, July 2019

Turkey’s government is preparing to provide a boost to the economy through faster credit growth by tweaking some reserve rules for commercial lenders, reported Bloomberg.

Authorities will set required reserves depending on how much banks lend, pushing through the changes in an omnibus economy bill that is being discussed in parliament and the legislation also allows the central bank to determine mandatory reserves for all balance-sheet assets and liabilities, including derivative products such as swaps.

Instead of reining in credit growth after controversial elections last month, Turkey is forging ahead by trying to unlock new financing for an economy that is sputtering after a recession.

Following the ouster of Governor Murat Cetinkaya, President Recep Tayyip Erdogan urged lower interest rates and said the central bank will provide more support for the government’s policies.

The proposed law, called an omnibus bill for the wide range of changes it includes, was submitted to parliament by the governing party earlier this week and allows the central bank more freedom in setting rules for mandatory reserves by considering changes in balance sheet items.

The proposal requirements will be kept lower for banks that lend more and higher for those that lend less.

The central bank will decide on the mandatory ratios when needed, depending on market conditions, having repeatedly used the instrument in the past to support the lira and to try to revive lending.

The bill is being discussed at the parliamentary planning and budget commission and will later be sent to the general assembly for approval and it aims to resolve financial difficulties that might arise, without elaborating.

TAGS : Turkish lira, President Recep Tayyip Erdogan, Murat Cetinkaya, TCMB

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