Financing firms to hold cash reserves like banks

ISTANBUL

The Central Bank said around 10 billion Turkish Liras ($5 billion) of funds would be subject to the reserve requirements. DAILY NEWS photo, Selahattin SÖNMEZ

Turkish Central Bank will set reserve requirement on financing firms. But, it may cause burdens on these firms, particularly which offer loans for consumers purchases such as houses and cars
The Turkish Central Bank says financing firms will have to hold around 900 million liras of reserves at the Bank.

Turkey’s Central Bank said Oct. 4 that it was extending regulations on reserve requirements to financing companies in addition to banks as part of efforts to better control loan growth, but the move will create extra burdens on such firms, according to sector representatives.

Financing firms, which offer loans for consumers purchases such as houses and cars, form a rapidly growing sector in Turkey. Loan growth for banks was running at 29 percent as of last month, almost double the Central Bank’s reference level.

The financing firms will be subject to the same reserve requirement ratios as banks, 11 percent for lira funds and 11.9 percent for foreign exchange funds.

The Central Bank said around 10 billion Turkish Liras ($5 billion) of funds would be subject to the reserve requirements and that financing firms would hold around 900 million liras of reserves in Central Bank accounts as a result.

The new rules will take effect in December, with companies required to transfer the required reserves to the Central Bank by Dec. 20.

Extra burdens on financing firms

Some sector representatives addressed the extra burdens on financing companies with the new rules.
“High reserve requirements will increase the costs of consumer loans. This will negatively affect the growth rates in consumer loans, especially automotive and housing loans,” Finansinvest said in a written statement Oct. 4.

It is also important here to see how much financing companies reflect new burdens on loans, according to the general secretary of the Automotive Distributors Association of Turkey (ODD), Hayri Ece.

“If they reflect new burdens on their loans, this will inevitably have negative effects on automotive demand. Yet these companies are competing with each other and they have sources, so they may not reflect all new burdens on loans. I won’t expect a dramatic decrease in automotive demand,” he said.

The total automotive loan stock was worth 32.6 billion liras in August, while the share of financing companies is around 12 billion liras, according to ODD data. Thirteen companies are in the sector, according to data from the banking watchdog (BDDK).