Turkish banks resist calls to cut lending

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Turkish lenders are resisting demands by the Turkish Banking Regulation and Supervision Agency (BRSA) to curb consumer credit growth, which authorities accuse of fueling inflation and the current account deficit.

Leaders of Turkey’s major banks clashed with BRSA chairman Mehmet Ali Akben last Thursday, according to their meeting minutes.

The main difference that emerged from the debate centered on a recent increase in consumer borrowing.

Akben attributed the demand for retail loans to their low cost compared to business credit and said the interest rate differential between them had become too narrow.

The banks have said that the growth of consumer loans is always lower than inflation and that the risks involved are at “reasonable” levels.

The meeting was part of the regular discussions with lenders and included Alpaslan Cakar, head of the Association of Banks of Turkey and managing director of the country’s largest public lender, Ziraat Bankasi AS.

The regulator and the banking association declined to comment.

How the debate unfolds could resonate well beyond the banking sector and help shape Turkey’s political agenda for the remainder of the year. Inflation is already close to 20%, with Turkey’s price growth forecast for the end of the year being noted in the government’s economic program released on Sunday.

Another credit-fueled boom would risk pushing up imports and fueling the economic imbalances that have destabilized the lira and discouraged investors.

The clash with lenders could also portend differences of opinion among policymakers in Turkey, especially as the central bank calls on Turkish President Recep Tayyip Erdogan to cut rates as early as this month.

Meanwhile, Turkish Treasury and Finance Minister Lutfi Elvan said the government was looking for ways to curb the increase in personal loans.

While credit growth is far from the boom levels seen during the COVID-19 pandemic last year, it has shown signs of recovery during a pause that followed a cycle of monetary easing and a decision in November of last year to remove a rule that pressured banks to extend credit.

Sterling-denominated consumer loans have risen 10% since the start of this year, largely thanks to a 23% increase in credit card debt.

Commercial loans are up 6.3%, according to data from the banking watchdog.

The contrast in approaches follows a period over the past two years when the government relied heavily on banks, especially state-owned ones, to accelerate lending to support the economy after the onset of the crisis. pandemic.

The central bank’s reluctance to raise interest rates helped keep consumer demand for debt in an economy that posted record annual growth of 21.7% in the second quarter.

A surprise acceleration in inflation last month to 19.25% from the previous year pushed Turkey’s benchmark rate adjusted for price growth into negative territory for the first time since October of the year last.

The weighted average rates on consumer and business loans are 22% and 20.7% respectively, according to data compiled by Bloomberg.

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