Turkey’s government is considering a capital injection for state-owned banks so they can prop up businesses hit by the coronavirus pandemic, according to people with knowledge of the matter.
Work on the plan has just begun and it’s not yet clear how much funding the lenders will receive should the capitalisation go ahead, the people said, asking not to be identified because the matter is private. One option includes the Treasury issuing lira-denominated bonds to fund the programme, they said.
Efforts are focused on the three main state-owned lenders – TC Ziraat Bankasi AS, the country’s biggest bank, Turkiye Halk Bankasi AS and Turkiye Vakiflar Bankasi TAO – whose buffers are being eroded by heavy lending, the people said. There is no clear timing on the plan, which may not proceed, they said.
Turkey is weighing a second capital boost for its lenders in a year as state-owned banks compensate for slower lending by their private peers in a bid to keep the economy afloat. Lenders around the world are being relied on to pass stimulus to their customers, while governments including Germany and France have pledged to guarantee billions in corporate loans to cope with the Covid-19 outbreak.
Halkbank and Vakifbank shares rose as much as 1.5% and 1.3%, while the 12-member Borsa Istanbul Banks Sector Index was trading 0.2% up as of 2.09pm local time.
The Treasury and Finance Ministry and Halkbank declined to comment. Ziraat Bank and Vakifbank didn’t return calls and e-mails seeking comment.
Turkey’s private lenders have been criticised for their reluctance to lend to distressed companies.
The government wants to give banks more firepower, the people said. The capital adequacy ratios of Halkbank and Vakifbank were above the regulatory benchmark of 12% at the end of last year at 14.3% and 16.6% respectively. Ziraat and Halkbank are owned by Turkey’s sovereign wealth fund, while Vakifbank is controlled by the Treasury.
The 14% depreciation of the lira this year against the dollar has also weighed on the capital of state banks.
Vakifbank’s management is working on scenarios to strengthen its capital, Istanbul-based based Oyak Securities said in an e-mailed note on Friday, following a teleconference with the lender’s executives. The note didn’t give more details.
The pace of lending by state-owned institutions has been accelerating at three times that of their private peers since 2017, according to data compiled by the banking watchdog. The government last year injected 28 billion-lira ($4.1bn) into its state banks, the most in 18 years.
To mitigate the effects of the coronavirus outbreak and quicken lending, the banking regulator introduced a new ratio over the weekend. The new rule aims to get banks to purchase government bonds and engage in swap transactions with the central bank, the regulator said.