Turkish lenders are resisting demands from the Turkish Banking Regulation and Supervision Agency (BRSA) to curb growth in consumer credit, which authorities blame for fueling inflation and a current-account deficit.
The executives of top Turkish banks on Thursday last week faced off against BRSA chairman Mehmet Ali Akben, according to the minutes of their meeting.
The major difference that emerged in the debate centered around a recent uptick in borrowing by consumers.
Akben attributed the demand for retail loans to their low cost relative to corporate credit and said that the interest-rate gap between them has become too narrow.
Banks said that growth in consumer loans is still below inflation and the risks they present are at “reasonable” levels.
The meeting was part of regular discussions with lenders and included Alpaslan Cakar, head of the Banks Association of Turkey and chief executive officer of the country’s largest state-run lender, Ziraat Bankasi AS.
The regulator and the banking association declined to comment.
How the debate plays out could resonate well beyond the banking industry and help shape Turkey’s policy agenda for the rest of the year. Inflation is already running close to 20 percent, with Turkey’s year-end forecast for price growth raised in the government’s economic program published on Sunday.
Another jolt of credit-fueled expansion would risk driving up imports and feeding the economic imbalances that have unsettled the lira and turned off investors.
The clash with lenders might also hint at differences in opinion among decisionmakers in Turkey, especially as the central bank fields calls from Turkish President Recep Tayyip Erdogan to deliver a rate cut as early as this month.
Meanwhile, Turkish Minister of the Treasury and Finance Lutfi Elvan has said that the government is looking at ways to curb an increase in retail loans.
While credit growth is nowhere near the boom levels seen during the COVID-19 pandemic last year, it has shown signs of a pickup during a pause that followed a monetary easing cycle and a decision in November last year to remove a rule that pressured banks to extend credit.
Lira-denominated loans to consumers have grown 10 percent since the beginning of this year, thanks largely to a 23 percent surge in credit card debt.
Commercial loans are up 6.3 percent, data from the banking watchdog showed.
The contrast in approaches follows a period over the past two years when the government leaned hard on banks, especially those owned by the state, to accelerate lending to support the economy after the onset of the pandemic.
The central bank’s reluctance to raise interest rates has helped to keep up demand for debt from consumers in an economy that grew at a record annual clip of 21.7 percent in the second quarter.
A surprise acceleration in inflation last month to 19.25 percent from a year earlier pushed Turkey’s benchmark rate adjusted for price growth into negative territory for the first time since October last year.
Weighted average rates for consumer and commercial loans are at 22 percent and 20.7 percent respectively, data compiled by Bloomberg showed.
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