Turkey lowers banks’ asset ratio requirements in stimulus reversal

The Turkish banking regulator cut banks’ required asset ratios to 90 percent from 95 percent, relaxing a rule that coerced banks into lending more and buying more Treasury bonds.

The watchdog also reduced the ratio for Islamic banks to 70 percent from 75 percent, it said in a statement on Monday.

Turkey introduced the ratio requirement in April as it sought to stimulate lending to consumers and businesses and to help the Treasury and Finance Ministry fund a widening budget deficit. The ratio is calculated by comparing deposits to loans, bonds and swaps.

The measure, which will be applied from Oct. 1, followed a surprise rate hike by the central bank last week designed to defend the lira and ease investors’ concerns that a splurge in lending by banks would lead to economic instability.

The lira extended a record low against the dollar on Monday.

On Friday, the regulator also eased curbs on local banks engaging in currency swaps and other trades with foreigners. Investors had opposed the measure saying it was a misguided attempt to bar short-selling of the lira.