Bloomberg News

Turkey Lenders Surge After Central Bank Cuts Reserve Rates

October 27, 2011

(Updates with closing share prices in second paragraph.)

Oct. 27 (Bloomberg) -- Turkish banking shares surged, snapping a three-day losing streak, after the central bank cut reserve requirements on lira liabilities, freeing up capital for increased lending.

The index of banking shares gained 3.3 percent to 112,606.6 at the close in Istanbul, rebounding from yesterday’s 3.5 percent drop. Turkiye Garanti Bankasi AS, the largest by market value, surged 3.6 percent to 6.36 liras. Yapi & Kredi Bankasi AS, part-owned by UniCredit SpA, jumped 4.6 percent to 3.42 liras. Turkiye Halk Bankasi AS, a state-run bank, gained 3.7 percent to 11.25 liras.

The weighted average for reserves for varying maturities was cut to 10.5 percent from 12.6 percent, the central bank said today. The changes will take effect from Nov. 11 and free up about 11 billion liras ($6.3 billion) of liquidity, it said.

The central bank’s move gives lenders cash as they “adjust themselves to the short-term liquidity shortage in the system,” Ozgur Altug, chief economist for BGC Partners in Istanbul, said in an e-mailed report.

Central bank Governor Erdem Basci said this week he was withholding funding for banks at the 5.75 percent benchmark one- week rate and directing them to an overnight borrowing facility that costs as much as 12.5 percent. The policy allows the bank to switch between the rates and gives it flexibility enjoyed by “no other bank in the world,” Basci said, as he moves to strengthen the lira and control inflation.

“There is considerable uncertainty over how exactly the central bank will manage domestic lira liquidity conditions,” Ahmet Akarli, an economist with Goldman Sachs Group Inc., said in an e-mailed report today. “Failure to fully sterilize the reserve requirement cuts may result in renewed lira weakness and create further confusion over the central bank’s policy framework.”

The lira gained 0.4 percent to 1.7518 per dollar, appreciating for a sixth day.

--Editors: Linda Shen, Tim Farrand

To contact the reporter on this story: Benjamin Harvey in Istanbul at Bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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