ISTANBUL: An expected capital increase will help Turkey's Ziraat Bank to spearhead President Tayyip Erdogan's drive to boost economic growth and tackle chronic current account deficits this year, the head of the country's largest lender told Reuters.
Chief Executive Alpaslan Cakar, who is also chairman of the Turkish Banks Association, said state banks like Ziraat were the driving force in the economy in recent years and would carry on even as they seek to pay dividends in 2023.
He downplayed concerns raised by private-sector counterparts over risks posed by a flurry of bond-holding regulations, and he said credit would continue to boost sectors like manufacturing and agriculture.
Erdogan introduced a "new economic model" in 2021 that prioritises growth, investment and exports and is aimed at flipping Turkey's persistent trade deficits, a major component of the current account. The model relies on targeted loans and low interest rates, in line with his unorthodox view that cutting rates decreases inflation.
"We will give significant support to Turkey's economic model. For that reason we want to be strong in capital terms," Cakar said in an interview conducted late last month.
In December, Reuters reported citing sources that state-owned banks were in talks with the Treasury and the sovereign wealth fund to secure more capital, allowing them to boost lending ahead of elections this year.
"There is no clear figure yet for the capital increase of state banks. We are consulting with the relevant institutions on this issue," Cakar told Reuters at Ziraat's Instabul headquarters.
The economy is expected to have expanded 5 per cent in 2022 but growth is slowing and uncertain for 2023, when presidential and parliamentary elections due by June pose Erdogan's biggest political test in his two decades in power.
To boost growth and back Erdogan's economic vision, the central bank has slashed its key interest rate to 9 per cent from 19% since September 2021, stimulus that crashed the currency in December 2021 and drove inflation to a 24-year high above 85 per cent in October.
State banks have supported the economy with low-cost financing for the last few years, increasing their dominance in the financial sector and their capital needs. State banks' share of loans have reached a record level near 50 per cent.
Dividends, loans, risks
Asked about record sector profits in 2022, Cakar confirmed a Reuters report in late December that Turkish banks wanted to make dividend payouts to shareholders. Banking watchdog the BDDK - which makes recommendations each year regarding banks' profit distribution - was evaluating the request, he said.
Cakar, however, said profits were set to fall in 2023 as inflation cools.
In the January-October period, the sector's net profits leapt 417 per cent from a year earlier to 389 billion lira ($20.72 billion), boosted by inflation-indexed bond yields.
Authorities have sought to discourage foreign exchange use following the 2021 lira crisis. They imposed nearly 100 new regulations on banks, including a mandate to hold more treasury bonds that drew rare criticism from private-sector executives.
But Cakar said these holdings would not pose risks. "The weight of fixed coupon bonds held in the balance sheet due to regulations will not reach a level that will disrupt the balance sheet," he said.
He also said that Ziraat's selective loans policy would continue in 2023, with the priorities being manufacturing, agriculture and small- and medium-sized enterprises (SMEs).
"We have become one of the banks that gave the biggest support to the Turkish economy model," he said, noting its cash loan size rose 61 per cent to 1.2 trillion lira in 2022.
Ziraat's non-performing loans ratio was low at 1.1 per cent last year, compared with 2.2 per cent sector-wide, he said.
He also said the bank would be active in international funding this year, aiming for a 100 per cent syndication renewal in February, and seeking to increase international funding, including via Eurobonds.