Turkey suspends lending to FX-rich businesses in latest crackdown

ISTANBUL, June 24 (Reuters) – Turkey on Friday restricted lending to many businesses with more than $1 million in foreign currency liquidity, the latest step to reverse a falling exchange rate by tightening banks and businesses, and the lira rose as much as 5%.

After most local markets closed for the week, a state regulator said if companies had more than 15 million lira ($908,000) in foreign currency assets and exceeded 10% of the total assets or annual income, they would not be allowed to receive new lira loans.

The new rule was the latest in a series of government and central bank moves since a historic currency crash in December pushed inflation up. Banking watchdog BDDK said it would boost financial stability.

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Analysts said the Turkish currency could rise further when markets reopen on Monday, as the measure could force many large and medium-sized companies to convert foreign exchange assets into pounds in order to maintain access to credit.

The lira rallied to 16.4975 against the dollar, its strongest in three weeks, as the metrics were first revealed by state-run Anadolu. It was worth 16.85 at 1904 GMT, up 3% on its best trading day of the year.

December’s currency crisis was triggered by a series of unorthodox interest rate cuts that President Tayyip Erdogan demanded from the central bank despite rising prices.

The lira lost 44% of its value last year and remains down 22% this year due to political concerns, depleted official reserves, a growing current account deficit and some fears investors and savers regarding capital control.

Well over half of deposits in Turkey are in hard currency to protect against pound depreciation and inflation. The BDDK measure aims to address this problem, said Enver Erkan, chief economist at Tera Yatirim.

“The basic perspective here is to reduce demand for currencies deemed ‘unnecessary’ or for speculative purposes,” he wrote.

The depreciation of the lira and the fallout from the war in Ukraine pushed Turkey’s annual inflation rate to a 24-year high of 73.5%, weighing heavily on household budgets ahead of an election tight for Erdogan by mid-2023.

Lending restriction is the latest step that has placed public institutions, especially the central bank, in a dominant role in the foreign exchange market.

Among them are central bank market interventions to boost the lira, a state-backed exchange-protected deposit system, and a requirement for exporters to sell a portion of foreign exchange earnings to the central bank.

($1 = 16.5156 Lira)

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Reporting by Ezgi Erkoyun and Daren Butler; Written by Jonathan Spicer; Editing by David Gregorio

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