Bloomberg News

Turkish Banks Slump on Funding Costs, Rate Increase Expectations

October 24, 2011

Oct. 24 (Bloomberg) -- Turkish banks including Turkiye Vakiflar Bankasi TAO fell after the central bank raised the cost of funding for banks to reduce the supply of liras, and concern grew that a rate increase may follow.

State-run Vakifbank fell 3.3 percent to 3.19 liras at 2:53 p.m. in Istanbul. Yapi & Kredi Bankasi AS, part-owned by UniCredit SpA, dropped 2.2 percent to 3.57 liras. Akbank TAS declined 2.4 percent to 6.46 liras.

The central bank increased its overnight repo lending rate to 12 percent from 8 percent on Oct. 20 as it sought to deter banks from borrowing in liras. At the same time it’s selling dollars in daily auctions, withdrawing liras from the market. The lira has slumped 15.5 percent this year, the second-worst performance in emerging markets after the South African rand.

”There’s fear that interest rates will increase at some point, maybe sooner rather than later,” Adil Rizvi, a trader at EFG Istanbul Securities, said in an e-mailed response to questions today. “Markets are confused.”

Central Bank governor Erdem Basci will talk about a plan to help the lira strengthen “significantly” at a meeting on Oct. 26, the central bank said in an e-mailed statement today.

Banks have sought more cash from the central bank via a special facility since the lending rate was increased last week. They borrowed 8.7 billion liras in overnight repo on Oct. 21 at the new annual rate of 12 percent. Banks borrowed 7.7 billion liras from the special facility on Oct. 20, when the rate was 8 percent. Banks had last requested the borrowing in August.

--Editors: Mark Bentley, Aydan Eksin

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Aydan Eksin at aeksin@bloomberg.net


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