Turkish economy minister threatens to cap rates on commercial loans

By bne IntelliNews May 9, 2013

bne -

The Turkish government intends to instigate a cap on the cost of loans to small and medium-sized enterprises (SME), Economy Minister Zafer Caglayan said on May 8. The planned market intervention appears part of the drive to offer stimulus to wider economic growth, while trying to keep a lid on consumer credit growth.

Ankara plans to introduce a ceiling on the interest rates banks charge on loans to SMEs, the combative Caglayan told Bloomberg TV, calling some practices unethical. The economy minister has regularly lambasted the Central Bank of Turkey (CBT), headed by Governor Erdem Basci, for its cautious policy, as well as the country's commercial banks, using populist rhetoric which goes down well with the electorate. By way of contrast, those institutions tend to find protection from the far more market-friendly deputy prime minister for economy and finance, Ali Babacan.

The comments are clearly meant as a shot across the bows of the banks, as the market anticipates another move to ease policy from the CBT. Caglayan said in the interview that the banks should cut rates on commercial loans after the central bank reduced its policy rate and rates corridor by 50 basis points in April.

He also called for Turkey's banking regulator to be more active on bank practices regarding commercial loan rates, and instead that it is "not ethical" that some banks demand fees as high as 4% from companies applying to revise the terms of outstanding loans. "I will reveal those banks which don't lower their loan rates," the minister threatened.

Points out Tim Ash at Standard Bank, "More of the same from Caglayan, who tends to have banks, the central bank and indeed Turkey's main policy team (Babacan-Simsek-Basci) in his firing line most of the time... Most of his comments are meant for the domestic audience, and I guess they are par for the course in his position as minister of trade/economy. Further intervention against banks will not go down particularly well."

On top of the banks, Caglayan also turned his ire on one of his favourite targets - CBT Governor Basci. "We want interest rates to fall for an acceleration in economic activity, [given the] further slowdown in inflation," he said, reiterating his oft repeated criticism of the central bank's cautious policy. While he said he welcomed the CBT's April rate cut, he claimed it was "late," and that the bank should have been more proactive. "Turkey has capacity for a further decline in interest rates," he insisted.

At the same time, Ash points out that anticipation of further monetary easing from the CBT is rife, and hints that the banks need to pick up that baton to play their part in stimulating commercial activity. "[T]he combination of weak industrial production data, soft inflation prints (at least headline, albeit core remains sticky) and REER heading over the 120 mark [means] the assumption is that the CBT will continue to ease policy, to script, at its next policy meeting," Ash notes. "This means a further narrowing in the interest rate corridor, and likely rate cuts across the board, in its various policy rates."

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