Bloomberg News

Turkey Takes New Measures Against Banks to Curb Loan Growth

June 18, 2011

(Updates with chief regulator interview in third paragraph, JPMorgan in eighth.)

June 18 (Bloomberg) -- Turkey’s banking regulator increased costs for banks that exceed a new limit for consumer lending, the latest in a series of steps designed to slow loan growth and rein in a booming economy.

The Banking Regulation and Supervision Agency in Ankara increased the general provisions a bank must pay against consumer loans to 4 percent from 1 percent should its consumer loan portfolio exceed 20 percent of total loans. The decision, published in today’s Official Gazette, applies to consumer lending excluding housing and car loans.

“There are a lot of banks exceeding the 20 percent limit and they are generally the larger banks,” chief regulator Tevfik Bilgin said by telephone.

The changes follow central bank increases in the reserves banks must set aside against liabilities such as deposits. Turkey wants to slow loan growth, without increasing interest rates, in order to reduce the size of the current-account deficit and slow the pace of the economic expansion from the 8.9 percent it recorded last year.

“Clearly this means that the Turkish authorities feel that they need to do something and the central bank efforts are really not working fast enough,” Tim Ash, head of emerging markets at Royal Bank of Scotland Group Plc, said in a phone interview today. “But this step on its own probably isn’t going to be enough.”

Banks Fall

Turkey’s banking index has dropped 12 percent this year, almost double the rate of decline for the main ISE National 100 index, after the central bank raised reserve requirements on liabilities by 10 percentage points in six months. Foreign lenders including HSBC Holdings Plc and Citigroup Inc. have bought stakes in Turkish banks over the past decade, seeking higher profits in an economy that’s grown at more than three times the average in the European Union.

Loans increased an annual 36.5 percent to 610 billion liras ($382 billion) on June 3 compared with 35.6 percent a week previously, the regulator said on June 13. The government and central bank say banks should cut loan growth to an annual 25 percent by the end of the year.

Lira ‘Pressure’

“It is encouraging to see that the central bank is not alone in its efforts to slow down loan growth,” Yarkin Cebeci, economist at JPMorgan Chase & Co. in Istanbul, said in an e- mailed response to questions. “This should ease the pressure on the central bank and on the lira in the short term and should provide more room for the central bank to remain on hold and to stick to its unorthodox policy mix.”

The lira has declined 3.3 percent against the dollar this year, the biggest decline among major emerging market currencies.

The regulator today also redefined how it calculates consumer credit risk for the purpose of capital adequacy ratios, assigning a higher risk value to short-term consumer loans and increasing reserves for non-performing loans that exceed 8 percent of the total.

The change will penalize banks that offer large amounts of short-term consumer credit and may force some to set aside additional capital to stay above the 12 percent adequacy limit, an official at the regulator said, speaking on condition of anonymity because he’s not authorized to speak to the media.

Credit card loans are also included as consumer loans in the new lending limits, the official said.

--With assistance from Steve Bryant in Ankara. Editors: Phil Serafino, Kim McLaughlin

To contact the reporter on this story: Ali Berat Meric in Ankara at americ@bloomberg.net Mark Bentley in Istanbul at mbentley3@bloomberg.net

To contact the editor responsible for this story: To contact the editor responsible for this story: Riad Hamade at rhamade@bloomberg.net


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