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Turkey to reward banks that lend more with looser reserve ratios: report

A teller holds Turkish lira banknotes at a currency exchange office in Istanbul on August 13, 2018. Turkey's troubled lira tumbled on August 13 to fresh record lows against the euro and dollar, piling pressure on stock markets on fears the country's crisis could spill over into the world economy. / AFP PHOTO / Yasin AKGUL

The Turkish Central Bank unveiled regulatory changes that determine the amount of cash lenders have to put aside as reserves depending on how much credit they extend, Bloomberg reported on Monday.

Required reserve ratios for banks with loan growth of 10 percent to 20 percent will be set at 2 percent — with some exceptions — while remaining unchanged for other banks, according to a statement on Monday. The ratios are currently at 7 percent for deposits of up to three months, 4 percent for six months and 2 percent for up to one year.

Weeks after unleashing record monetary easing, the central bank is now looking to complement its push for looser policy with a boost to the economy through faster credit growth. It said the revision will initially unlock about 5.4 billion lira ($960 million), and also provide $2.9 billion of gold and foreign-currency liquidity to the market.

State banks stand to benefit the most from the changes because they have been at the forefront of government efforts to extend cheap loans.

The lira fell more than 1 percent against the dollar after the statement. Turkey’s 13-member Borsa Istanbul Banks Index reversed gains and was down 0.4 percent as of 5:10 p.m. in Istanbul.

Additionally, the current remuneration rate of 13 percent, applied to mandatory lira-denominated reserves, is set at 15 percent for banks with 10 to 20 percent loan growth and at 5 percent for others.

Within the current framework, required reserves are effectively insurance against bank liabilities — such as deposits and participation funds. With the proposed change, Turkey is turning the rules into an incentive to get credit flowing again.

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