Turkey Sees No Need to Expand Credit Scheme That Spurred Growth

  • Presidential adviser Cemil Ertem speaks to Bloomberg in Ankara
  • Policy makers have no plans to expand credit guarantee fund

A pedestrian walks past retail stores in the Grand Bazaar in Istanbul.

Photographer: Kostas Tsironis/Bloomberg

Turkey doesn’t intend to expand a credit guarantee scheme that helped lift lending to private companies from the slump that followed last year’s failed coup, and spurred growth.

Policy makers aren’t planning to raise the 250 billion liras ($71 billion) allotment for the Credit Guarantee Fund, through which companies access borrowing with the Treasury acting a guarantor, Cemil Ertem, a senior adviser to the president, said in an interview late Wednesday.

Turkish companies have already borrowed around 200 billion liras under the plan, with demand for loans peaking in May and June. The decline in applications for new credit since then means there’s no need to increase the size of the fund or roll out a “second round,” he said. Firms can continue to access the remaining 50 billion liras, Ertem added, while the government could also make the regulatory changes needed to allow repayments from existing loans to be converted into new credit.

The scheme was part of the government’s response as, following last year’s attempted military takeover, the economy contracted for the first time since the global financial crisis in 2009. While fiscal stimulus boosted investments and consumption, the credit guarantee fund resulted in a pickup in lending to companies and loan growth is now at a two-year high just above 20 percent, according to official data. Morgan Stanley analysts predicted the fund would increase growth in the economy by at least one percentage point.

The rise in average interest rates on new loans since the fund was created has been driven more by the mismatch between the maturities of banks’ assets and liabilities than the scheme itself, Ertem said. New lending to companies will eventually lead to a rise in bank deposits, he said.

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