Istanbul: Turkey is working on legislation to allow commercial lenders to securitise and sell all of their $515 billion (Dh1.9 trillion) of outstanding loans to investors, as the government seeks to boost credit and spur economic growth.

Policymakers have already completed technical work on the measure, which requires a new law to take effect, Deputy Prime Minister Nurettin Canikli said in an interview on Thursday, without providing a detailed time frame. The legislation won’t restrict the type of loans that banks can securitise, he said.

The plan is a significant boon for Turkey’s banking industry, whose ratio of cash loans to deposits is nearly 125 per cent — the highest level on record. Along with other policies outlined by Canikli, which include beefing up deposits using revenue from a national pension scheme, the aim is to boost the banks’ ability to finance growth that’s been faltering since a failed military coup attempt last July.

“It’s a regulation that allows banks to package and securitise their assets in any format — a loan or a package of loans — and turn them into cash,” Canikli said in his office in Ankara. “It’s a very important instrument. There are no limits,” he said.

The planned legislation would contain nothing to prevent Turkey’s sovereign wealth fund from buying the new securities, while overseas demand is already evident, said Canikli. Ziraat Bank’s loan for a third bridge over the Bosphorus in Istanbul is interesting investors, he said.

Mismatch

The government is trying to boost banking liquidity and may also be trying to tackle the “maturity mismatch” between the deposits held by the banks and the credit they have extended, said Ovunc Gursoy, an Istanbul-based banking analyst at Seker Invest. By adding liquidity, policymakers may also be trying to lower bank deposit rates, he said.

Bank loans extended by Turkey’s lenders were worth 1.83 trillion liras as of March, according to regulator data compiled by Bloomberg.

Turkey’s banks face a shortage of deposits that is driving up rates, which in turn makes much-needed investments more expensive, said Canikli, whose portfolio also includes Turkey’s banking regulator. After easing the pressure, the government is calling on lenders to avoid “excessive competition” for deposits, he said.

Another measure that will boost deposits is the government’s plan to split revenue from Turkey’s automatic pension system among the banks, which could total 100 billion liras ($28 billion) in 10 years. He ruled out the introduction of any government regulation to drive down rates.

Partners

“We’re partners with banks. I presume banks would give an ear to what policymakers have to say about this,” Canikli said. “We just don’t want the excessive level of rates that would come out of a race, but we’re definitely not proposing negative real rates, either.”

Canikli’s call for lower bank deposit rates indicates a shift in strategy by the government, which had typically focused on the central bank when seeking to lower borrowing costs. As the central bank provides only a fraction of lenders’ total funding mix, the short-term interest rates announced by the regulator aren’t the only determinant in the cost of longer-term credit, Canikli said.

The deputy prime minister also lauded the central bank’s recent use of the late liquidity window rate, the highest of the banks interest rates that was once only a fringe instrument, which he said had helped to support the lira. The measure is “temporary” and will allow the bank to ease its current tight liquidity stance when conditions allow, he said.