NEWS Finance        29/05/2020

Turkey’s banking watchdog puts pressure on banks to toe the line

Turkey’s banking watchdog, the Banking Regulation and Supervision Agency (BDDK) has started to take a strict line with banks in Turkey which do not comply with its strategy expectations and operating standards. BDDK today fined 18 banks around TL 102.1 million (nearly USD 15 million) for carrying out transactions contrary to its instructions, saying that the fines had been handed out after examining “the complaints by individual and commercial customers conveyed to our institution during the period of battling the COVID-19 outbreak.” The watchdog did not name the banks but said an inquiry was ongoing with regards to complaints. BDDK had earlier this month also fined 15 banks a total of USD 2.84 million over transactions that violated the watchdog’s instructions.

 

BDDK also today revised its asset ratio requirement for banks which it had announced on April 18th, 2020. Effective as of May 1st, banks were required to maintain a new consolidated and individual asset ratio of at least 100% to promote lending and protect the economy from the fallout of the novel coronavirus pandemic. The sum of a bank’s loans, 75% of its securities portfolio and 50% of its central bank swap balances must exceed the sum of its Turkish lira deposits and 125% of foreign currency deposits, according to the new regulation. For banks which follow Islamic banking regulations, known in Turkey as participation banks, the loans, securities and swaps should equal at least 80% of the deposits.

 

The reasoning behind the new asset ratio was to encourage banks to extend loans to boost the economy, but BDDK has seen that banks have preferred to invest in securities rather than increase loan portfolios to meet this new requirement. The banking watchdog revised the asset ratio as follows:

xx  The new asset ratio requirement will come into effect as from June 1st instead of May 1st.

xx  Banks with TL deposits + foreign currency deposits totalling less than TL 25 billion will be allowed until 21.12.2020 to adapt to the new regulation.

xx  In the asset ratio, loans to SME’s, project financing loans  and export loans will be calculated with a coefficient of 1.1.

xx  Loans which mature in less than 3 months will not be included in the calculation of the “loans” figure.

xx  In the calculation of TL based repos banks have carried out with their customers (excluding those with other banks) and the corporate bonds they have issued, these will not be included under “TL deposits” section in the asset ratio..

xx  In the calculation of F/X based repos banks have carried out with their customers (excluding those with other banks), these will not be included under “F/X deposits” section in the asset ratio.

xx  In its calculation in the asset ratio, the total of “F/X deposits will be calculated with the coefficient of 1 for the deposit amount equalling the value of F/X loans and with the coefficient of 1.75 for those loans exceeding the value of F/X loans.

 

Economist analysts are of the opinion that under new revised regulations, are putting more pressure on banks to extend loans to SME’s and exporters, to extend long-term loans instead of short-term loans, and to increase deposits rather than buy bonds.

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