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Turkish central bank expands bond holding requirements

EUTERS/Osman Orsal
The lira has stabilised since about August

Loans given to Turkish companies’ small- and medium-sized enterprise (SME) subsidiaries will be included when calculating the amount of bonds that lenders are mandated to hold, according to new regulations from the central bank.

In a letter sent to banks and seen by Reuters, the central bank said that for the loans to be considered SME loans, “all enterprises within the company’s risk group must also be an SME”.

Most other loans will require banks to hold a higher amount of bonds at the central bank, as part of regulations introduced this year to channel loans to sectors involved in production and exports.

Companies have complained about problems in accessing loans from banks given the selective loan policies introduced this year. To circumvent this, companies had been borrowing through their subsidiaries.

The loans covered by the new regulation have almost come to a standstill after the banks were notified, as they would mandate lenders to hold a higher amount of bonds, bankers said.

Earlier, Moody’s Investors Service said that banks in countries such as Turkey and Ukraine face a “very high” risk from restrictions on capital flows, weak international reserves and a high level of foreign currency debt.

“High dollarisation causes multiple problems when the local currency drops sharply in value,” according to the report headed by Moody’s vice-president and senior credit officer Eugene Tarzimanov.