Turkish Central Bank says it may adjust reserve requirements for lenders

Turkey’s Central Bank said Nov. 27 it may adjust reserve requirements for commercial lenders to encourage them to reduce their reliance on foreign borrowing, a move which would lessen their vulnerability to volatile capital inflows.

Turkey is particularly vulnerable to changes in foreign capital flows, which it uses to finance its current account deficit, its main economic weakness.

The Bank said capital flows to emerging markets remain volatile due to uncertainty over global monetary policy and to global political risks. The U.S. Federal Reserve has signaled its first rate rise since 2006 will come next year, but the timing is uncertain.

In its quarterly financial stability report, Turkey’s Central Bank said it may adjust reserve requirements and its reserve option mechanism, by which it determines how much lenders must pay if they choose to hold a portion of their lira required reserves in foreign currencies.

Turkish banks’ long-term foreign loans stood at $63.3 billion at end of the third quarter, up from $56 billion at the end of 2013 and from around $3 billion a decade ago.

The Bank said annual growth in credit card and vehicle loans was slowing, but that consumer and housing loans were still strong.