Turkey banking chief sees looser regulations after interest rate hike

ANKARA: Turkey is likely to loosen some regulations on domestic banks to spur lending, the head of the national banking association said, as the government looks to ease the impact of a widely expected central bank rate increase.
Banks should benefit as Ankara emphasizes “growth-oriented” measures, Huseyin Aydin said, referring to the stimulus policies championed by President Tayyip Erdogan in an effort to boost growth through consumption.
“The government is determined to pursue growth-oriented economic policies. We are now getting signals that easing in macro-prudential measures will be carried out,” said Aydin, who is also head of top state lender Ziraat Bank.
Five years ago regulators introduced tighter rules designed to cool lending and close a yawning current account deficit. Those included higher reserve requirements, forcing banks to hold more capital.
Aydin said he expects changes to regulations on reserve requirements and risk weighting of assets, which should help to offset the impact of tighter monetary policy on bank costs. “We are getting concrete signals about this, they are just around the corner,” he said.
On Tuesday, the central bank left its main one-week repo interest rate unchanged at 7.5 percent in a surprise move likely to heighten concern about threats to its independence and heap more pressure on a struggling lira currency.
Erdogan has repeatedly railed against high interest rates, equating them with treason and sparking concerns about political interference in monetary policy.
Analysts and investors have repeatedly called for a rate hike to rein in inflation and put a floor under the lira, which has been hurt by escalating violence in the country’s southeast and by a rumbling dispute with Russia over a downed warplane.
The bank has long faced political pressure to keep monetary policy loose, with President Erdogan repeatedly calling for rate cuts and even equating high interest rates with treason.
The bank had previously hinted that it would raise rates in tandem with the US Federal Reserve. Hot on the heels of a Fed hike, Tuesday’s meeting was seen as a critical test of the bank’s independence, and that of its governor, Erdem Basci.
Fourteen of 16 analysts polled by Reuters had expected the repo rate and overnight borrowing rate to rise, most tipping half percentage-point moves.
The bank also held its overnight borrowing rate at 7.25 percent and its overnight lending rate at 10.75 percent.
Concerns about political pressure on monetary policy have spurred foreign investors to dump a net $6 billion in local bonds this year, after at least three years of inflows. The lira weakened immediately after Tuesday’s rates announcement and traded at 2.9348 to the dollar at 1215 GMT, from Monday’s close of 2.9130.
Aydin also said he expects bank loans to grow by 15-17 percent next year, adding that his own bank, Ziraat, will outperform the sector with growth of 16-18 percent.
Turkey’s banks should average 10 percent profit growth in 2016, he added, with Ziraat expected to achieve profit growth of up to 20 percent.
Ziraat will also form a new fund and an Islamic insurance unit toward the end of 2016, he said.