The BRSA expanded the ban on commercial lira loans by lowering the threshold for holding foreign currency assets from 15 million lira to 10 million lira (~ 538 thousand dollars). According to this;
-A company with a foreign currency cash asset of more than TL 10 million and exceeding 5% of total assets or annual sales cannot obtain a new local currency loan; the old limits were 15 million liras and 10%.
The regulation in question is a revised version of the limits announced by the BRSA at the beginning of the summer, and the restrictions here seem to have become more stringent with the new figures. The basis for such measures of the CBRT and the BRSA is clear; companies with cash or foreign currency are asked not to use loans and to evaluate the cash they have. In order to access credit, they will need to reduce their foreign currency cash positions. It is certain that this will not be of much help to the activities of the companies in the implementation of business activities; because there are many factors such as cash flow, forward contracts, imports and sales to the domestic market and it is necessary to have foreign exchange. This foreign currency is not kept for speculative purposes, it is kept for commercial activities and currency transactions for hedge purposes. It is very important for companies to keep the net working capital reinforced in the current economic environment, in terms of inflation, foreign demand and export uncertainty. If companies use this cash for financing, they will not be able to stay liquid, and if they empty their foreign exchange positions, they will bear the maturity and exchange rate risk. For example, CGF for SMEs has been announced, or cheap loans with 7.5% interest from public banks… We will be watching whether the announced 100 billion TL CGF size meets the need.
The tightening in this regulation imposes a liquidity risk on the real sector balance sheet and a maturity and interest rate risk on banks. The policy rate was cut to 10.5% last week and is expected to be lowered to 9% in November. However, loan and bill interest rates were not falling within their own systematic before that, banks were obliged to purchase bills/securities to ensure this, and we saw that bill interest rates decreased due to this purchase requirement. These liabilities, which came in last week, will greatly expand the bond portfolios of banks and explain the issue of artificially falling interest rates due to regulations. Of course, there are many question marks. The main issue is that the reason why so many regulations are made so often is that the financial transmission mechanism is not functioning properly and automatically.
Since the exchange rate attack in 2018, the control mechanism has been kept tight with conditions such as swap, RR, foreign currency position, foreign exchange to TL conversion requirement, and the rate of converting export revenues to TL. Monetary policy, on the other hand, failed to control the exchange rate and interest at the same time. In a high inflation environment, a behavior such as people escaping to foreign currency by making arbitrage occurred because the interest on loans did not occur in the right place. The reason why interest rates on loans do not occur in the right place is very clear: it is very difficult to predict exchange rates, interest rates and inflation.
Inflation is problematic and there is a clear determination not to increase interest rates. SMEs could not find loans anyway, due to cost and banks' unwillingness to take maturity/interest risk. Banks will not want to take the risks of loans on capital again, because when you adjust for inflation in current conditions, nominal profits are erased in real terms. Although we do not see restrictive policies as sustainable in the long run, we see that the problems in making the transmission mechanism work keep the need for intense frequency regulation alive.
Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı