Turkey is turning on the credit taps, spearheaded by state-owned lenders, to help its economy weather the storm caused by the global coronavirus outbreak.
The authorities doubled the allotment for the Credit Guarantee Fund, through which companies access borrowing with the government acting as a guarantor, to 500bn liras ($77bn) for businesses and individuals, according to a presidential decree published in the official gazette Monday.
The new regulation was followed by a joint statement from three government-held banks that emergency loans will be extended to families with a monthly income of 5,000 liras or less.
The move may help the poorest 20% of the country who earn the equivalent of 6% of the country’s gross domestic product, according to government data for 2018. That compares with 48% for the top 20%. Around 40% of Turkey’s labour force earns a minimum wage of around $350 per month.
The government has announced a slew of measures to help contain the economic fallout from the outbreak, which has claimed 131 lives in the country. Hundreds of thousands of businesses have shut down, while a gauge of confidence among Turkish manufacturers fell by the most since the 2008 global financial crisis.
The decree allows credit under the programme to be restructured more than once, but sets a maximum maturity of 96 months for businesses and individuals, and 156 months for investment loans. It also doubled the amount the Treasury and Finance Ministry can contribute to the program to 50 billion liras.
Turkiye Kalkinma ve Yatirim Bankasi, the nation’s development bank that was reshaped recently to provide long-term investment loans, was also included under the programme along with other lenders.
Since 2016, Turkey resurrected the Credit Guarantee Fund, letting commercial banks share some of their lending risks with the Treasury, which covers 7% of any losses – enough for lenders to approve many clients with borderline creditworthiness. Through that mechanism, banks pumped credit to businesses within the upper limit of 250bn liras of the fund.
Turkey’s central bank earlier painted an optimistic picture about the impact of the coronavirus, saying the Middle East’s biggest economy is resilient to such shocks.
The monetary authority expects “high growth” in the first quarter thanks to the economy’s performance in January and February, central bank deputy governor Oguzhan Ozbas told the state-run Anadolu Agency on Sunday. However, the infection’s repercussions have started to impact foreign trade, tourism and transportation in March, Ozbas said.
“As the pace of the spread of the pandemic decelerates, we’ll see the economy recover rapidly,” Ozbas said. “With its dynamic structure, the Turkish economy will be among those that will get over this process with minimum damage and in a short time.”
The central bank cut its benchmark rate by a percentage point to 9.75% in an emergency meeting on March 17, even as inflation accelerated to 12.4% in February. The bank also announced a series of measures aimed at easing lenders’ access to liquidity.
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