Turkish government targets private banks during pandemic

The Turkish government's struggle to mitigate the economic damage from the COVID-19 outbreak has failed. It has now adopted a policy which appears to aim to polarise the private and public banking sectors in order to pressure private banks to hand over more credit.

Both Turkish President Recep Tayyip Erdoğan and Treasury and Finance Minister Berat Albayrak have both toughened their approach with private banks. The state-controlled Banks Association of Turkey (TBB) and the Regulation and Supervision Agency (BDDK), both of which are under Erdoğan’s sway, have also reproached the country’s private lenders in their latest statements.

The BDDK's weekly statistics on the banking and finance sector showed a decrease in the amount of credit offered by private banks, despite the new loan support provisions stated in the Economic Stability Shield program that Erdoğan revealed as a response to the coronavirus pandemic on March 18.

With the additional 25 billion lira ($3.6 billion) transferred to the Credit Guarantee Fund (KGF), banks are allowed to open fresh credit lines worth up to 250 billion liras ($36 billion) with KGF and Treasury guarantees. But when credit demand surpassed this amount, many banks began to reject loan applications, saying they had reached their limits.

The latest BDDK figures say that between March 27 and April 3, the volume of loans distributed by private banks had decreased by 3.8 billion liras ($550 million), while new loans extended by public banks increased by 9 billion liras ($1.3 billion).

The BDDK and TBB said they were closely monitoring whether banks were following the government’s guidance to give new loans. Erdoğan's reaction was more severe.

"Unfortunately, private banks are not performing well at all during this period. We expect private banks to do their part as well. We are keeping track of who does what these days," Erdoğan said.

His son-in-law Albayrak was even harsher in admonishing the banks, which he called racketeers.

“We see that our private banks have not shoulder their responsibilities in these difficult days. Those who stockpile masks the people need are no different to those who stockpile the money they collected from citizens, instead of offering it to people when it is needed most,” the finance minister said on Twitter.

“The exorbitant costs demanded by private banks for suspending loans and delaying instalments have come to our attention. They will publicly account for their actions," he said.

The government has all but denounced private banks as criminals and traitors with such statements.

Public lenders, which the government has now co-opted as a ready cash source, have been handing out loans safe in the knowledge that they have the backing of the Treasury, which is on hand to reimburse their losses. 

As a result, 13 billion liras ($1.9 billion) of capital support was transferred from the Unemployment Insurance Fund to three public banks (Vakıfbank, Halkbank, Eximbank) last year, when their financial structure weakened due to loans distributed on the government’s orders.

There is no such government support for private banks, which are, after all, commercial enterprises whose ultimate goal is to make a profit. Therefore, the government is trying to force private banks to give fresh loans, even if they will make a loss as a result.

For this reason, the government is forcing the private banks to follow its policies by labelling them as traitors, opportunists and racketeers while declaring the public banks at its command to be patriots and saviours.

The banking sector – which has been confronted with government demands to defer credit debts, restructure debts and freeze loans by threat of legal action – has been under heavy pressure due to the outbreak.

In an epidemic of indeterminate duration, private banks are avoiding giving new loans that they deem to be high risk during a period when uncertainty is at a peak.

Even if the outbreak ends in three months, the likelihood of Turkey’s economic gears turning again and companies being able to promptly pay back delayed old debts and instalments on new loans issued during the outbreak is extremely low.

Chances are that private banks’ executives are predicting that the government will pressure lenders to restructure and postpone repayment of the new loans. In such an atmosphere, further increasing the burden on banks with new credit is seen as a possible threat to the sector. Executives have shrugged off the government’s recent statements as political moves that aim to bolster support from the public.

© Ahval English

The views expressed in this column are the author’s and do not necessarily reflect those of Ahval.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.