BRSA: Risk rules of banks change to deter firms from lira swaps

The BRSA announced a new measure to “ensure the efficient operation of the credit system” and to enable banks to provide loans to those in need of financing. According to this;

·        In case non-bank domestic players make derivative transactions with abroad, banks will apply a 500% risk weight to TRY or FX cash loans extended to them.

While the central bank and economic institutions use marginal measures to support the lira and curb credit growth, the ultra-loose stance in monetary policy is maintained. The Central Bank’s guidance on liraization measures on a macro-prudential basis, which is stated to be continued in the MPC text. It is seen that such arrangements will continue within the framework of President Mr. Erdoğan’s assessments that interest rates should not be increased. In this context, the basic elements in the entire toolkit of the Central Bank are not activated and other fine-tuning measures are used. Although economic institutions are looking for measures and ways other than interest, we consider that the effects of these measures are mostly cosmetic rather than changing the main perspective.

Details about what kind of conditions will occur in swaps allocated to foreigners began to emerge. Although no official announcement has been made regarding the swap lines to be offered, it is planned to offer local currency liquidity to foreigners at the same rate as domestic investors, as long as the financing does not reach those who short sell the lira. Accordingly, under a program designed by the Ministry of Treasury and Finance and expected to take effect early next month, offshore investors will have access to a new swap line with a maturity of at least three to six months to purchase TRY-denominated assets.

In March, the BRSA warned banks not to provide lira funds to firms wishing to speculate against the lira in the overseas market. The central bank also aimed to limit the liquidity supply outside of Turkey by restricting domestic investors’ purchases of new lira bonds sold by international banks.

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