Turkey allocates more state bank cash for its crisis-hit industrialists

Turkey will offer more cash through state-owned banks to help companies trying to overcome the effects of a deep economic downturn.

The latest package of measures, worth 30 billion liras ($4.9 billion), was announced by Treasury and Finance Minister Berat Albayrak on Thursday. It will provide financing to help importers such as manufacturers, who have seen costs surge during a lira sell-off.

“Sectors that depend on imports, as well as those contributing to employment, and posting a high deficit of trade will be supported by this financing package,” Albayrak said in Istanbul.

The financial aid is the second such package in less than two months offered by the government, which announced help for energy companies of about $5 billion in April. It has also cut taxes, introduced food subsidies and urged bankers to keep interest rates low to help revive economic growth.

The economy slumped into a recession in the second half of last year after a currency crisis peaked in August. The lira dropped 28 percent in 2018 and has fallen a further 13 percent this year. It dropped 0.3 percent to 6.11 per dollar at 5:46 p.m. local time in Istanbul.

Albayrak announced the latest plan after data this week showed consumer confidence at the lowest levels since records began 15 years ago. Pessimism among manufacturers, the service industry, retailers and builders is also increasing, official data published on Thursday showed.

Higher import prices are also pressuring Turkey’s inflation rate, which has remained at around 20 percent for the past three months. The central bank has kept its benchmark interest rate at 24 percent this year despite more losses for the lira.

Albayrak said the loans, to be provided by state-run lenders Halkbank, Ziraat Bank and Vakifbank, will be repaid over as long as 10 years with a two-year grace period on the repayment of capital. Halkbank and Ziraat are controlled by Turkey’s sovereign wealth fund, which is chaired by President Recep Tayyip Erdoğan. Albayrak, his son-in-law, is deputy chairman.

Ratings agencies, the Organisation for Economic Co-operation and Development (OECD), the IMF and many economists have urged the government to stop pursuing short-term, ad-hoc measures to support economic growth. Instead it should make structural reforms to the economy and deal with a mounting pile of non-performing loans that are weighing on the finance industry and key industrial sectors, they say. 

The government has announced a plan to help banks deal with tens of billions of dollars of unpaid debts owed by real estate and energy firms by taking them off their balance sheets and placing them in special funds. Progress on the plan, however, has been limited amid basic disagreements with potential investors.

Turkish companies went on a borrowing splurge after the 2008 financial crisis, taking advantage of a flood of cheap capital that entered emerging markets. Some analysts say that the government encouraged the borrowing and failed to take precautionary measures in case the funding sources dried up or became more expensive.

Much of the borrowing was used to fund large construction projects advocated by Erdoğan and a housing boom.