Turkey Takes New Measures Against Banks to Curb Loan Growth

June 18, 2011, 9:01 AM EDT By Ali Berat Meric and Steve Bryant

(Updates with economist in fourth paragraph, markets in fifth, loan growth in sixth.)

June 18 (Bloomberg) -- Turkey’s banking regulator increased costs for banks that exceed a new limit for consumer lending, the latest in a series of steps designed to slow loan growth and rein in a booming economy.

The Banking Regulation and Supervision Agency in Ankara increased the general provisions a bank must pay against consumer loans to 4 percent from 1 percent should its consumer loan portfolio exceed 20 percent of total loans. The decision, published in today’s Official Gazette, applies to consumer lending excluding housing and car loans.

The changes follow central bank increases in the reserves banks must set aside against liabilities such as deposits. Turkey wants to slow loan growth, without increasing interest rates, in order to reduce the size of the current-account deficit and rein in the pace of economic expansion from the 8.9 percent it recorded last year.

“Clearly this means that the Turkish authorities feel that they need to do something and the central bank efforts are really not working fast enough,” Tim Ash, head of emerging markets at Royal Bank of Scotland Group Plc., said in a phone interview today. “But this step on its own probably isn’t going to be enough.”

Banks Fall

Turkey’s banking index has dropped about 12 percent this year, almost double the rate of decline for the main ISE National 100 index, which fell 6.5 percent in the period. Foreign lenders including HSBC Holdings Plc and Citigroup Inc. have bought stakes in Turkish banks over the past decade, taking advantage of a lending boom as the economy grew at more than three times the average in the European Union.

Loans increased an annual 36.5 percent to 610 billion liras on June 3 compared with 35.6 percent a week previously, the regulator said on June 13. The government and central bank say banks should cut loan growth to an annual 25 percent by the end of the year.

The regulator today also redefined how it calculates consumer credit risk for the purpose of capital adequacy ratios, assigning a higher risk value to short-term consumer loans and increasing reserves for non-performing loans that exceed 8 percent of the total.

The change will penalise banks that offer large amounts of short-term consumer credit and may force some to set aside additional capital to stay above the 12 percent adequacy limit, an official at the regulator said, speaking on condition of anonymity because he’s not authorised to speak to the media. Credit card loans are also included as consumer loans for the new lending limits, he said.

--Editor: Mark Bentley

To contact the reporter on this story: Ali Berat Meric in Ankara at americ@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden in Dubai at barden@bloomberg.net.

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