Turkey to return state banks' capitalisation measure to former level

Turkiye Vakiflar Bankasi TAO

28/10/2024 08:17

By Ebru Tuncay and Nevzat Devranoglu
       ISTANBUL, Oct 28 (Reuters) - Turkey is reducing the
limit on state banks' usage of special government bonds issued
for capital increases to former levels, in the latest step to
reverse unorthodox economic policies used before 2023 elections.
    Under the draft 2025 budget recently submitted to
parliament, the limit for issuing special issue government
domestic debt securities on loan is being reduced from 3% of
budget appropriations to the former rate of 1%.
    The higher rate had been used before the 2023 presidential
and parliamentary elections to enable state banks to be
capitalised and provide loans cheaper than market conditions.
    The latest move will reduce the additional capital or 
special bond issuance that supports banks' equity. The main
state lenders are Ziraat, Vakifbank  VAKBN.IS  and Halkbank
 HALKB.IS . 
    Since mid-2023, the Treasury and central bank have either
removed previous economic policies or brought regulations back
in line with their former structure in a policy U-turn towards
greater orthodoxy.
    The special issue bond issue is a type of security issued
for the capital increase of public banks. The banks buy this
security and lend money to the Treasury. The Treasury then lends
this money to the Wealth Fund, and the Wealth Fund lends it to
public banks. 
    The Turkish Wealth Fund provided a total of 111.7 billion
liras ($3.26 billion) of capital support to public banks through
special issue government domestic debt instruments issued by the
Treasury in March 2023.
    A banking source said that since they are issued in euros or
dollars, the Treasury does not want these papers to appear on
its own balance sheet.
    "In order to avoid the perception that it borrowed foreign
currency from the domestic market... it is reducing its share in
the budget," the source said, meaning it will not provide
additional capital to public banks or will reduce its
capital-like loans.
    "This limit for public banks to provide loans cheaper than
market conditions was raised before the elections. Now it is
being pulled back to old levels. We evaluate this within the
scope of normalisation," another banker said.
    
($1 = 34.2944 liras)

 (Additional reporting by Nevzat Devranoglu; Writing by Daren
Butler; Editing by Jonathan Spicer and Susan Fenton)
 ((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging:
daren.butler.thomsonreuters.com@reuters.net))