Turkey adjusts reserve rules to channel more loans to production sectors: report

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Turkey’s central bank on Monday adjusted the reference values on loan growth needed for banks to be subjected to lower required reserve ratios, saying the move aims to channel loans to production-oriented sectors, Reuters reported.

Banks with a “real” loan growth rate of between 5 percent and 15 percent, after inflation is taken into account, will be subjected to only a 2 percent required reserve ratio on most lira deposits — compared with an earlier band of 10 percent-20 percent, which did not factor in Turkey’s double-digit annual inflation.

The announcement was the latest move by the bank to adjust reserve requirements to encourage loan growth and help the economy bounce back from recession, triggered by last year’s currency crisis and a surge in inflation and interest rates.

The bank has also cut its policy rate by 10 percentage points this year to 14 percent, and is expected to announce a further cut on Thursday.

On Monday it said that under the new required reserve regulations, banks’ real cash loan value will be calculated by dividing the nominal loan amount by the consumer price index in the relevant period.

The real annual loan growth rate, which will only take into account lira loans, will be calculated based on the most recent three-month average of the real cash loan stock values, excluding loans extended to financial institutions.

The new reference values and guidelines for loan growth calculations will also help preserve the benefits for state banks, on which the government has relied to drive lending. Two banks had risked running over the previous top limit of 20 percent, Reuters reported last month.

The changes also include the removal of some housing and consumer loans from banks’ loan growth calculations. The bank said the move aims to channel loans to production-oriented sectors rather than consumption-oriented ones.

“Long-term commercial loans that have a strong relation with production and investment, and long-term housing loans that have a weak relation with imports will be encouraged,” the bank said in a statement.

At the new top limit of 15 percent real loan growth, housing loans with a maturity of five years or more, as well as commercial loans with a two-year and longer maturity, will be subtracted from the total loan growth.

Banks will need to remain at or above 5 percent growth after 50 percent of the real change in retail loans, excluding housing loans with a five-year and longer maturity, is subtracted from the total growth rate.

For banks that do not fall within the new reference values, required reserve ratios are set at 4 percent-7 percent for deposits with maturities less than a year.

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