Türkiye is injecting about TL 107 billion (around $5.62 billion) in public banks in a capital boost sought to encourage lending in a move ahead of elections set for May 14, statements and media reports said on Wednesday.
State lenders Halkbank and VakıfBank said they would issue shares to raise their capital by TL 30 billion and TL 32 billion respectively. Local media reported that the country’s biggest bank, Ziraat, is increasing its capital by TL 45 billion.
The shares issued for the capital increase will be sold to the Türkiye Wealth Fund (TWF) by way of a private placement, without a public offering, the banks said in a statement to the Borsa Istanbul Stock Exchange (BIST).
In addition, Ziraat’s participation unit, Ziraat Katılım, is said to see its capital raised by TL 4.7 billion, private broadcaster Bloomberg HT suggested.
The last capital increase for state banks happened in March, when the sovereign wealth fund, their main shareholder, injected TL 51.5 billion into them. However, Türkiye has boosted state lenders’ capital four times since 2018.
The share of loans issued by state banks has risen to an all-time high of nearly 50% as they supported the economy in recent years through cheap financing and the state’s Credit Guarantee Fund (KGF) loans.
According to public data, the TWF wholly owns Ziraat Bank, 75% of Halkbank, and 36% of VakifBank.
The $6.7 billion fund injected sought to strengthen the capital of state lenders in two separate rounds in 2019 and 2020, was financed through bond sales by the Treasury and Finance Ministry to banks in the local market.
The government has endorsed an economic program based on lower interest rates to boost loans, exports, and investment. It says the model would also eventually help Türkiye solve its chronic current account deficit problem and contribute to stabilizing the Turkish lira.
The government’s economic program includes extending more selective loans via the KGF to support production and exports. It is expected to stick with the policy at least through the presidential and parliamentary elections set for May 14.
President Recep Tayyip Erdoğan has called for lower borrowing costs to boost economic growth through production, investment, and exports, insisting that interest rate hikes cause inflation.
Last year, the country’s central bank cut its benchmark policy rate by 500 basis points to counter an economic slowdown, then held it at 9% in December and January.
The bank trimmed by another 50 basis points last month to boost industrial production and employment after the devastating earthquakes killed more than 50,000 people and left millions homeless. It said the "measured" cut was "adequate" to support the recovery.
Business groups and economists have said it could cost Ankara up to $100 billion to rebuild housing and infrastructure while shaving one to two percentage points off economic growth this year.
The government has relied on public lenders, as they boosted their lending throughout the pandemic, helping the economy avoid a contraction and mount a strong recovery.