Turkey to stimulate economy with new loan scheme

Turkey will seek to stimulate economic growth through new lending to industry worth as much as 25 billion liras ($4.3 billion).

The loans, which will carry variable interest rates linked to inflation, will be offered by 12 of the country’s largest banks and will be backed by Treasury guarantees.

Turkey is seeking to reverse an economic slump through unconventional methods such as special lending, tax breaks and help for the real estate industry. The economy entered a recession in the second half of last year before growing on a quarterly basis in the first three months of 2019. Many economists are now predicting a return to negative economic growth.

The loans will be offered over three or four years. The borrowing will carry a waiver on repayment of capital of six months and carry interest rates of 4 percent, or 4.5 percent above consumer price inflation. The costs will be recalculated every six months on changes to inflation.

Participating banks include the state-run Ziraat Bankası, Halkbank and Vakıfbank, Dünya newspaper reported. The non-government banks participating in the scheme are İş Bankası, Garanti, Yapı Kredi, Akbank, QNB Finansbank, Denizbank, TEB, Şekerbank and Eximbank.

The loans’ costs to borrowers are below interest rates on regular lending by banks. Consumer price inflation of 18.7 percent in May also means that the interest rates fall below the central bank’s benchmark rate of 24 percent, potentially undercutting its efforts to slow inflation and support financial stability.

The central bank left its benchmark rate on hold on Wednesday, citing inflation risks.  

Turkey’s government introduced similar lending schemes in 2017 and last year, prompting fears among investors of economic overheating and contributing to declines for the lira.

The lira lost 28 percent of its value last year and is down about 9 percent since Dec. 31.