Turkey's central bank unveils new steps to address credit availability

ANKARA: Turkey's central bank unveiled new measures on Saturday meant to address credit availability including higher reserve requirement collateral for lenders, days after it shocked markets with a 100 basis-point interest rate cut to 13 per cent.

It said the steps were meant to support financial stability and strengthen the monetary transmission mechanism after citing the need to address the widening gap between its policy rate and lending rates when it cut rates on Thursday.

The central bank replaced an existing 20 per cent reserve requirement ratio for credits with a higher 30 per cent treasury bond collateral requirement, Reuters reported.

Turkish authorities including the central bank and BDDK banking regulator have previously taken steps to limit loans to companies except those that are net exporters, as part of an economic plan that seeks to flip the big current account deficit to a surplus.

Last month, business groups complained over regulations and said manufacturing firms are not able to access financing with low rates.

As part of the central bank's new measures, the banks need to keep 20 per cent in securities for commercial loans extended with an interest rate over 1.4 times the current reference rate of 16.32 per cent. The lenders need to maintain 90 per cent bond collateral if a commercial loan extended will have an interest rate more than 1.8 times the reference rate.

Timothy Ash at Blue Bay Asset Management said the new central bank rules to lower banks' lending rates makes banking very complicated.

"(It) will increase overheating concerns, boost inflation and put more downward pressure on the lira," Ash said on Twitter.