Turkey loan growth turns positive after state banks step up

Following last year’s turmoil, which sent the local currency to record lows and brought the economy to the brink of recession, President Recep Tayyip Erdogan’s administration has urged state-run banks to extend cheap loans to companies from farms to soccer clubs and help consumers pay off their credit cards or get cheap mortgage deals.

Annualised lending turned positive on the week ending Feb. 22, with a rise of more than 1 per cent when adjusted for foreign currency changes, according to central bank data. While the increase bolsters Erdogan’s stance as a steward of the economy going into local elections on March 31, the growth was concentrated in the state-backed lenders, which could cause problems.

“The rapid increase in loan growth may pressure state banks’ margins, creating difficulty in managing liquidity needs and may lead to a squeeze in capital ratios,” said Cagdas Dogan, a banking analyst at BGC Partners Inc. in Istanbul.

Capital ratios at Turkish banks have already fallen because of billions of dollars in debt-restructuring requests and a growing pile of bad loans. The government has recapitalised three of its banks by selling bonds to its unemployment fund, and is working on a fresh plan to further bolster state-owned banks’ capital levels.

Supercharged Growth

Erdogan has presided over years of supercharged credit growth. A sluggish economy isn’t what he wants ahead of this month’s local elections which are seen as barometer of support for his policies.

Despite looming risks, loans extended by government lenders jumped by 24.7 billion liras ($4.6 billion) this year through Feb. 22, while the books of those in the private sector fell by 12.4 billion liras, according to data published last week by the banking regulator.

Data compiled by Bloomberg also showed that state-owned lenders’ aggressive lending has increased their share in total loans by 300 basis points to 43 per cent since August, while commercial and international banks pulled back.

And there is no sign of slowing down. On March 1, the nation’s largest bank by assets, state-owned Ziraat Bankasi AS announced more cuts to its monthly mortgage rates and interest charges on consumer debt, days after the government extended term limits on loans for everything from computers to cars.

“The state-run banks are the main drivers behind the increase but private banks started to follow them more recently, although at a slower pace,’ QNB Finansbank Chief Economist Erkin Isik said. He said 17 per cent currency-adjusted loan growth this year is needed to keep economic growth at 1 per cent. “It will be important to keep the loan growth trend in the rest of the year.”