Turkey works to ease bank capital strains amid pound crash – sources


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ISTANBUL – Turkish authorities are working on possible relief measures for banks caught between a currency crash and existing capital requirements, including a possible capital injection for state-owned banks, according to three sources familiar with the discussions .

The Banking Regulation and Supervision Agency (BDDK) plans to add more flexibility around the capital adequacy ratio (CAR), which is high relative to its global peers at 12%, two banking sources said. close to the file.

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For public lenders – who analysts say are the most stressed – a planned capital injection should ease pressure from the CAR, although it is not clear how much would be needed given the rapid liquidation of currencies, have declared a banker and a senior official in the economy.

The BDDK’s plan is not finalized, the sources said on condition of anonymity.

The BDDK and the Ministry of Finance were not immediately available for comment. Ziraat Bank declined to comment, while the other two major public lenders – Vakif Bank and Halk Bank – were not immediately available.

These measures are aimed at stabilizing banks and positioning public lenders, particularly to stimulate lending, in line with a series of unorthodox interest rate cuts by the central bank that sparked the sale of currencies.

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Despite much criticism from opposition economists and lawmakers, President Tayyip Erdogan insisted that monetary easing boost credit, exports and growth ahead of the 2023 election.

The pound has lost 55% of its value against the dollar this year, including nearly 40% in the last month alone. The sharp depreciation has caused the sterling value of foreign currency loans to skyrocket, putting pressure on RCAs, which are measured in local currency.

FOCUS ON STATE LENDERS

Analysts have warned that tensions have increased in the banking sector, in which state actors have become more dominant in recent years.

“Turkish banks will face increased pressure on capital (and) state-owned banks will suffer the most,” said Regina Argenio, director of ratings for financial institutions in the region at S&P Global Ratings.

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“When we start to consider the impact of the depreciation of the pound and the impact of the deterioration of assets, the ratio looks a lot lower than it initially appears,” she said Thursday during ‘a webcast.

Nonetheless, Argenio said, forbearance in calculating the RCA means past exchange rates can be used, which would delay the impact of the lira’s recent sale.

BDDK data before the sale picked up in October shows the sector’s CAR to be 17% and 15% for public banks accepting deposits.

“The planned capital injection will also ease the capital adequacy ratio of public banks,” one of the banking sources said.

The senior economics official said the size of the third capital injection in three years for state banks was not yet clear.

“Each bank’s balance sheet will be reviewed to clarify their resources,” the official said. “After the capital support, public banks will be more active in providing loans … and will continue to promote growth and jobs.” (Additional reporting by Orhan Coskun and Nevzat Devranoglu in Ankara, and Karin Strohecker in London Writing by Ece Toksabay Editing by Jonathan Spicer and Mark Potter)

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