Breaking News from the Central Bank: According to the latest announcement, the Central Bank of the Republic of Turkey has decided to change existing reserve requirements to curb the rise in consumer loans. The Bank reports that it has implemented a range of measures aimed at preventing a continued increase in consumer lending.
With this reserve requirement move, the Central Bank is intervening in consumer credit to limit factors that could negatively affect growth, inflation and external balances. According to the changes announced by the Central Bank, efforts will be made to direct credit supply away from consumption and toward productive, manufacturing-focused sectors that support sustainable growth. This shift is also expected to positively affect the current account balance and contribute to financial stability.
What Is the Change at the Central Bank?
Under the new Central Bank measures, banks with annual real credit growth exceeding 15% will have certain long-term loans—specifically, loans with maturities longer than two years used in selective sectors and mortgage loans longer than five years—treated differently in the growth calculation. The full real changes in these eligible loans will be deducted from the numerator of the growth-rate formula when calculating the adjusted real credit growth rate, provided that the resulting adjusted growth rate is below 15%.
For banks with growth below 15%, starting from March 9, 2020, the treatment differs: for individual loans other than mortgages with maturities of five years or more, 75% of the real change in these individual loans—and for Turkish lira loans extended to enable early repayment or pre-maturity restructuring of foreign currency cash loans—the entire amount of the Turkish lira loans granted will be deducted from the numerator of the growth-rate formula. If the adjusted real credit growth rate calculated after these deductions remains above 5%, those banks will be eligible for reserve requirement incentives.
What Direction Did the Central Bank’s Statement Indicate?
The Central Bank stated that it will continue to use reserve requirements flexibly and effectively as a macroprudential tool that complements short-term interest rates, its main monetary policy instrument. The sharp recent increase in consumer lending, and its potential effects on growth composition, inflation and external balances, together with the impact of early repayment or pre-maturity restructuring of foreign currency cash loans—which has led to increased use of Turkish lira lending—were the main considerations behind changes to the current reserve requirement framework.
The new measures are intended to help redirect credit supply from consumption toward productive, manufacturing-oriented sectors that support sustainable growth, while also contributing to a healthier current account balance and greater financial stability. These changes will apply to the liability period dated March 6, 2020, and will come into effect on March 20, 2020.