Türkiye’s central bank has called on banks to end the practices that increase the costs of commercial loans by circumventing regulations, according to a letter seen by Reuters.

"In the audit activities carried out by our bank's inspectors, it has been determined that there are practices that circumvent the regulations and increase the costs of commercial loans," the letter said.

The Central Bank of the Republic of Türkiye (CBRT) referred to the higher commissions charged by banks for the extension of loans. Banks pay up to 30% on deposits and collect only 17%-18% on commercial loans.

Authorities want banks to attract Turkish lira deposits and extend cheap loans to manufacturing and exporting companies to narrow the country's current account deficit, as part of an economic plan endorsed by the government.

Introduced in late 2021, the plan prioritizes investment, employment, production and exports, aiming at flipping Türkiye’s persistent trade deficits, a major component of the current account.

The model relies on targeted loans and low-interest rates and also aims at helping reduce inflation eventually, which hit a 24-year high in October but moderated over the last two months and is expected to decrease significantly this year.

Last year, the central bank slashed its benchmark policy rate by 5 percentage points to 9%, citing the signs of economic slowdown.

Banks are applying extra commissions on extensions of loans in order to offset relatively low loan rates, two banking sources told Reuters.

The central bank warned "there may be a need to make additional regulations within the framework of preventing overcharges and increasing predictability and transparency," if such practices continued.

The letter added that the practices were "not common" across the industry.